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Telecom: Will we see IPO opportunities?

Aug 31, 2000

The outlook on the telecom industry has improved since the recent changes in the regulatory environment. The buoyancy in the sector has picked up with investors becoming bullish on Indian telecom contrary to global trends. Telcos have become a regular feature in the leading dailies with the spurt of activity. Each is thrashing out expansion plans to capture a piece of the pie and gain critical operational mass. These plans are being funded either by divesting stake in favour of global majors or through the initial public offer (IPO) route.

The ball was set rolling by the Mittal's, who sold an aggregate of 20% stake in Bharti Telecom and Televentures in favour of Singapore Telecom (SingTel) for a whopping $ 400 m or Rs 18.4 bn. The company is still considering a public issue either in the domestic or foreign markets and is awaiting an opportune moment.

Hughes from the Hughes stable, owned by General Motors has gone in for an IPO through book building. The new issue will raise Rs 8.37 bn of which the promoters will contribute Rs 1.37 bn. This leaves Rs 7.5 bn to be raised from the public.

Waiting in the wings is Mahindra British Telecom (MBT). The shareholders have approved a public offer. However, the when and where is yet to be finalized. Domestic Telecos will be keenly tracking the response to the Hughes offer and its performance on listing.

The global market scenario is bleak, as Telcos have fallen out of favour. Markets are of the opinion that the global majors have over-bid for 3rd generation (3G) licenses. With these companies now having to raise funds for payment of fees there is all likelihood of an overhang syndrome in the global markets. Could this lead to the Indian telcos opting for the domestic primary market route?

The IPO route would not only provide the Indian promoters access to funds, but also enable them to keep a majority stakes in their ventures for the foreseeable future.

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