Tata Teleservices to acquire 51% stake in Hughes Telecom

Tata Teleservices Ltd (TTSL) has announced that it had executed agreements with Hughes Network Systems (HNS), the Ispat Industries and Alltel Corporation, the principal promoters of Hughes Telecom
(India) Ltd (HTIL), to acquire 50.83 percent of the paid-up equity capital of HTIL from the HTIL sponsors. 

The acquisition would be subject to the necessary statutory/regulatory approvals and is expected to conclude in early October. A public announcement under the SEBI Takeover Code would be made within the 
prescribed time. 

As consideration for the acquisition of 71.43 crore equity shares of HTIL, TTSL will issue 71.43 crore Redeemable Non-cumulative Convertible Preference Shares (RPS) of TTSL in favor of the HTIL sponsors. These RPSs have a face value of Rs 10 and carry an interest coupon of 0.1 percent and are redeemable either at the end of 51 months at a price of Rs 8 and or at the end of 75 months at a price of Rs 10. Tata Sons has provided a put option for the redemption of the
RPSs. 

Separately, HTIL will be restructuring the debt owed by HTIL to HNS. Part of the debt owed by HTIL to HNS will be rescheduled as long term debt. Also, HNS will partially transfer its HTIL receivables to TTSL in exchange for RPSs and warrants of TTSL. DSP Merrill Lynch acted as sole advisors to the Tatas on the transaction and ICICI Securities acted as advisors to HNS. 

TTSL will also be making an Open Offer for a further 20 percent of HTIL's equity from its other shareholders. The offer will be made at HTIL's six-month average price since the consideration paid to HTIL's shareholders in the form of RPSs has a net present value which is less than HTIL's six-month average price. Going forward, TTSL intends to realign and restructure the debt profile of HTIL to provide funds required for the Maharashtra Circle at more favourable rates of interest. TTSL would also implement CDMA technology to enable HTIL's customers to have limited mobility through wireless in local loop (WiLL) and other value-added services. 

HTIL's acquisition is an important milestone in TTSL's plans to have a comprehensive presence and to invest around Rs 9,000 crore in the next four years to achieve a subscriber base of 3 million by 2006. With the acquisition of HTIL's 170,000 subscribers, including 120,000 subscribers in Mumbai, TTSL acquires an immediate presence in Maharashtra rather than entering Maharashtra as a competitor to HTIL and building up its presence over several years. 

After the acquisition of Maharashtra, TTSL's operations will comprise six Category A telecom circles (Andhra, Karnataka, Tamil Nadu, Gujarat, Delhi and Maharashtra, including Mumbai). These circles currently comprise 56 percent of India's subscriber base and 65% of the country's telecom revenues.