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Saturday, December 02, 2006

Idea, AV Birla to divest Rs 2000cr

With the explosive growth of their subscriber base, telecom companies are all looking at capital markets to mop up funds to fuel their expansion plan, reports Hindustan Times.

Idea Cellular, the fifth largest operator in the country and the flagship telecom venture of AV Birla Group, has decided to enter the capital market to mop up between Rs 1700 and Rs 2000 crore.

The company has appointed JM Morgan Stanley, Merrill Lynch among others as book-runners for the proposed initial public offer, IPO, which is expected to be ready by January end. The company will file the draft red herring prospects, DRHP in the first fortnight of December.

Since, under Sebi norms, the minimum float size is 10%, the company will divest between 10% and 12%, said a highly placed investment banking source.

“The last private placement made the promoters is at a market capitalisation of Rs 15,000 crore (Rs 150 billion). The proposed float is expected to be at 10% to 20% premium of the private placement price,” he added. AV Birla Group recently divested 35% stake in the company to a clutch of private equity firms.

However, this is a fresh issue of shares, where the proceeds will be utilized by Ideal Cellular for capital expenditure. After the proposed issues, the promoters stake will come down to around 58%.

Besides strengthening the existing networks, the proceeds from the proposed IPO will be used to roll out Idea Cellular's GSM network in Mumbai and Bihar, said a senior company official.

Since subscriber base growing very rapidly, the company needs to have a strong network in the existing circles as well as a foot print across the country.

Idea Cellular has a subscriber base of 11 million. In the last financial year, the company posted revenues of around Rs 4000 crore (Rs 40 billion) with a earning before interest depreciation, and tax amortization, EBITDA of 35%.

In comparison, industry leader Bharti Airtel has a market cap of Rs 1,17,729 crore (Rs 1,177.29 billion), reported revenues of Rs 11,660 crore (Rs 116.60 billion) in the last financial year, and registered EBIDTA of 37.4%.

The second largest listed telecom venture - Reliance Communication, has a subscriber base of 27.6-lakh and market cap of Rs 86,344 crore (Rs 863.44 billion).

Macquarie Research, one of the leading research firms, has revised its projection for India's wireless subscriber base. Its latest report says India’s wireless subscriber number will reach 400 million by March 2010. Its earlier estimate was 350 million during the same phase. The current subscriber base is of around 140 million.

According to report, the increase is being driven by better coverage by operators, a further reduction in handset price, and easing of spectrum constraints by first half of 2007 on new 3G spectrum and additional 2G and 2.5G spectrum allocation.

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