US-based private equity major Providence Equity Partners $640 million (Rs 2,560 crore as per the old exchange rate of Rs 40 to $1) deal to pick 20% in Aditya Birla Telecom (ABTL), a wholly owned subsidiary of Idea Cellular has been scaled down. Now Providence has picked 16.14% in the company for $428 million(Rs 2,100 crore as per the prevailing exchange rate of Rs 49 to $1).

While the transaction seems to have seen a valuation mark down of around 17% in dollar terms(due to appreciation of dollar against rupee), in rupee terms there is no such mark-down. In effect Providence got reduced its dollar term investment while ABTL maintained its rupee valuation.

According to this report, ABTL has offloaded lower equity as FIPB(the government body which clears foreign investment proposal) gave only a partial approval to the proposed investment. In December 2008, a subsidiary of Providence subscribed to around 2 million compulsorily convertible preference shares of ABTL which will be converted into 16.14% equity share capital of the company.

Idea Cellular had earlier said the funds will be used for network rollout and ongoing operations of Aditya Birla Telecom, which has a telecom service GSM licence in the territory of Bihar & Jharkhand.

Apparently, the investment proposal filed with FIPB involved 16.14% to be acquired by Providence Equity Partners and the remaining 3.86% by companies or persons associated with Providence. FIPB had given the nod to Providence for the investment, the other entities who were to pick the remaining stake did not get a green signal from the authority.

Idea Cellular planned to transfer its 16% in Indus Towers — a telecom tower joint venture between Bharti Airtel, Vodafone Essar and Idea Cellular — to ABTL. With over 70,000 towers in its portfolio, Indus is the largest independent tower company in the country.

The genesis of the transaction was that AV Birla Group which promotes Idea Cellular did not want to dilute their stake in the telecom company. So the deal was done through ABTL whose main draw was that it would build an exposure in telecom tower business. DSP Merrill Lynch acted as the sole financial adviser to Idea. Further with Indus Towers projected to float in the public market in a few years, Providence would have got a liquidity opportunity.

With this investment, Providence's total exposure to the AV Birla Group's telecom business has risen to about $828 million. In 2006, the PE firm had invested over $400 million in Idea through a pre-IPO placement.

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