Mumbai: Maverick investor C. Sivasankaran is in advanced talks with the Ruias of the Essar Group to purchase a 49% stake in Loop Telecom Pvt. Ltd, which owns mobile telephony licences in 21 states, for an undisclosed sum, two people familiar with the development said.
Neither—an Essar official and an investment banker—was willing to be named.
The deal could be signed in a few days, one of them said.
Sivasankaran, 53, will purchase the stake in his individual capacity by subscribing to a fresh issue of shares of Loop Telecom, an unlisted firm, and not through Siva Ventures Ltd, his investment vehicle that normally buys stake in companies.
“We are not investing in any telecom companies,” Siva Ventures managing director Srinivasan Vaidyanathan had told Mint over phone from Chennai last week. Sivasankaran could not be contacted. Essar Group’s spokesperson said: “As a policy, we do not comment on market speculations.”
The ace investor has actively bought and sold telecom assets.
In the early 1990s, he sold his Sterling Cellular Ltd, which owned the licence for Delhi, to Essar, marking the group’s entry into mobile telephony. He sold his majority stake in Aircel to Malaysia’s Maxis Telecom in 2006 for $1.08 billion (Rs5,076 crore today).
Currently, Sivasankaran is a minority investor in Tata Teleservices Ltd, a joint venture between Japan’s NTT DoCoMo Inc. and the Tata group, and holds a controlling stake in New Delhi-based telecom operator STel Pvt. Ltd, a joint venture with Bahrain Telecommunications Co.
STel operates in six circles: Himachal Pradesh, Bihar, Orissa, Assam, the north-eastern circle, and Jammu and Kashmir.
Since Loop also has licence and spectrum in 21 circles, if it is merged with STel, then the combined entity can have up to 14.4 MHz of spectrum, but will have to surrender or pay additional fee for spectrum in excess of 6.2 MHz in each circle to the government as required by Indian regulations.
Loop has licence and spectrum to operate all over India, but has so far launched services in five circles: Andhra Pradesh, Karnataka, Kerala, Tamil Nadu and Orissa.
The Ruias and Sivasankaran have been holding talks on Loop for some time now, an Essar official, who is part of the group’s telecom business, said.
A merger with Loop will give STel access to all major telecom circles as Loop has a pan-India licence. In Mumbai, Loop has a subscriber base of 2.9 million, and operates as Loop Mobile. Vodafone Essar Ltd has a 9.9% stake in it.
Current regulations prevent telecom operators from owning more than 10% in another operator in the same circle.
If indeed the deal goes through, it will be the first concrete move towards consolidation in India’s overcrowded telecom sector.
“Consolidation is inevitable because at the current level of operator density, it is hard for everybody to be profitable even in the medium term,” said Prashant Singhal, head of telecom advisory services at audit and consulting firm Ernst and Young.
“Given the three-year lock-in period for most of the new operators before they can sell out, consolidation in Indian telecom sector will likely start in early 2011, as the lock-in period will, by then, expire for several operators,” said Kunal Bajaj, India director at global telecom consulting firm Analysys Mason.