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Providence sells additional stake in Idea Cellular; makes modest returns

03 June, 2016

Global private equity firm Providence has sold around half of its remaining stake in its decade-old investment in Aditya Birla Group-promoted telecom service provider Idea Cellular for Rs 1,375 crore ($205 million) on Friday.

It sold the shares through a secondary market transaction, diluting its holding to 3.33%. At least half of the shares were picked by an investment entity under Morgan Stanley.

The PE firm has part-exited with modest gains over a fairly long period of 10 years. It has doubled the value of its investment in the last stake sale in local currency and coupled with the previous part-exit has clocked an internal rate of return (IRR) of just over 10%, not counting dividend earnings, as per VCCircle estimates.

The dollar terms returns are much lower given the 50% depreciation of Indian currency since it originally invested.

Earlier, Providence had sold 2.3% or around a quarter of its previous holding for Rs 1,414 crore ($234 million then) via an open market transaction two years ago. The PE firm had scored better part-exit back then, tripling its original investment with an IRR of 15% in local currency.

PE firms chase IRRs or annualised returns of over 20% in developing markets.

Providence’s remaining stake in the telecom company is valued at around Rs 1,279 crore ($191 million) based on the latest market price.

Idea Cellular scrip declined almost 10% to close at Rs 106.55 a share on BSE in a flat Mumbai market on Friday.

Providence had originally bought about 15% in Idea in 2006 for around Rs 1,800 crore ($400 million then). The telco went through an IPO and Providence’s stake got diluted further later due to fresh equity issues.

The PE firm, which focuses on investments in the telecom, media and technology sectors, had separately also invested in the telecom tower firm of the group Aditya Birla Telecom.

Its other Indian portfolio firms include cable and satellite television service provider Hathway Cable and Datacom Ltd, home shopping firm Star CJ Network India and digital entertainment solutions provider UFO Moviez India. Last year it sold small stake in UFO Moviez in its IPO.

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Providence sells additional stake in Idea Cellular; makes modest returns

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