UPDATE 3-Telekom Malaysia takes stake in India's Spice http://today.reuters.com/business/newsArticle.aspx?type=telecomm&storyID=nKLR33855
Friday 10 March 2006
By Clarence Fernandez
KUALA LUMPUR, March 10 (Reuters) - Malaysia's dominant phone provider, Telekom Malaysia (TLMM.KL: Quote, Profile, Research), entered the world's fastest-growing mobile phone market on Friday, buying 49 percent of India's Spice Communications Ltd. for $178.8 million.
Privately-owned Spice operates in the northern Indian state of Punjab and southern Karnataka state, two of the 23 regions making up India's mobile market. It has 1.8 million users, or 2.2 percent of a market of roughly 85 million mobile subscribers.
"India is a critical piece in our regional footprint," Telekom Malaysia Chief Executive Abdul Wahid Omar told a joint news conference in Kuala Lumpur.
Telekom Malaysia bought the stake from Deutsche Bank (DBKGn.DE: Quote, Profile, Research) and Ashmore Investment Management, Abdul Wahid said, adding that his firm would help Spice restructure $215 million in existing debt and had no plan to take its stake beyond 49 percent.
Spice Chairman B.K. Modi, whose B K Modi group retains 51 percent control of Spice, told Reuters ahead of the announcement on Friday that he was happy with the price.
"We have just seen the tip of the iceberg because everything is going to change," he said in a telephone interview, referring to the growth prospects for mobile phone technology.
"That's why the valuation is so high."
The deal values Spice at 15.4 times its EBITDA, a figure high even in Asian terms, and one that is more than twice the multiple paid in some recent deals in Europe, such as the buyout of Danish telecoms firm TDC by private equity firms.
Malaysian telephone firms are increasingly turning overseas for growth as they face a rapidly saturated market at home, where mobile phone penetration is about 68 percent.
India is attractive because mobile phone ownership is surging in Asia's third-largest economy, in part because it has the world's cheapest local mobile call rates.
"Malaysia brings a lot of experience in Asia," Modi said, when asked what strengths Telekom Malaysia offered.
Telekom Malaysia would also be more aggressive in helping Spice chase down growth opportunities, he added. "In the past the shareholders were banks, so they were protective of their money, in terms of growth opportunities," Modi told reporters.
RED-HOT MARKET
In December, Malaysia's biggest cell phone company, Maxis Communications Bhd (MXSC.KL: Quote, Profile, Research), took 74 percent of Indian mobile operator Aircel in a $1.08 billion joint-venture takeover with Apollo Hospital Enterprises Ltd. (APLH.BO: Quote, Profile, Research).
But analysts say 11-year-old Spice, which started wireless operations in Punjab and Karnataka in 1995, faces intense competition from larger players that have huge advertising budgets and the leverage of a national network. In response, Spice is lobbying the Indian government to let it operate in six new regions besides offering national and international calling services, company officials said.
"We're now adding in excess of 100,000 subscribers a month," Modi said. "We're seeing this year a very high exponential growth taking place. We're going to reach 3 million subscribers by the end of this year."
Spice competes with rivals such as India's top mobile services firm, Bharti Tele-Ventures Ltd. (BRTI.BO: Quote, Profile, Research), in which Britain's Vodafone Group Plc (VOD.L: Quote, Profile, Research) last year took a near 10-percent stake for about $1.5 billion. Singapore Telecommunications Ltd (STEL.SI: Quote, Profile, Research) owns 30.84 percent of Bharti.
Other Spice competitors include state-run Bharat Sanchar Nigam Ltd. and Reliance Communications Ventures Ltd. (RLCM.BO: Quote, Profile, Research). Foreign ownership in Indian mobile operators is capped at 74 percent.
India's red-hot mobile market has seen a spate of deals this week. Wireless and fixed-line services provider Tata Teleservices Ltd. sold a 7 percent stake to telecoms entrepreneur C. Sivasankaran, after selling a 9.9 percent stake to Singapore state investment arm Temasek Holdings Pte Ltd [TEM.UL] on Wednesday.
(Additional reporting by Shailendra Bhatnagar in New Delhi and Mark Bendeich and Jalil Hamid in Kuala Lumpur)
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