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Business – Essar plans to invest $2 bn in African telecom

Surajeet Das Gupta & Katya Naidu

The Essar Group is in talks with the government of South Africa to set up a power plant in the country. It also plans to invest over $2 billion (Rs 9,270 crore) to have a pan-African mobile operation in six-seven countries in the region.

“South Africa has no dearth of coal reserves, but lack of regulation is a problem. We are in talks for a presence in the power sector,” said a top source in Essar. South Africa is known for its huge power deficit, ensuring demand for new projects in the sector. Raising debt could be difficult in the country, though there is a lending channel open through foreign banks present in Africa.

The source said it would be difficult to go for the standard 70:30 debt-equity structure which is popular in India. Not revealing the size of the project, he said Essar was looking for only big projects and the company might need to set aside more equity for it.

The group, he added, had also prepared a telecom blueprint for Africa under which it would invest $2 billion to get 20 million customers and more, spanning six to seven countries in the region. “It sees huge potential in investing in Africa, which has a mobile customer base of 200 million,” he said.

According to an Ernst & Young report, the African wireless telecom market grew 49.3 per cent (compounded annual growth rate) between 2002 and 2007. The average mobile penetration for the continent is 37 per cent, expected to rise to 61 per cent by 2012.

Under Essar Communication Holdings, the Essar Group has a 49 per cent stake in Econet Wireless, which in turn has 70 per cent stake in its Kenyan subsidiary. The partnership between Essar and Econet has launched the ‘Yu’ network and has a million subscribers in the country. Essar also has a majority stake in Dhabi Group’s Warid Telecom operations in Uganda and Congo.

Indian companies in the past have failed in trying to cut big-ticket deals with South African companies. In September last year, Bharti Airtel had to call off a complex share swap deal with MTN after the government in South Africa rejected the merger structure. Anil Ambani’s Reliance Communications’ deal with MTN also ended abruptly, after RIL said it had the first right of refusal for any stock sale.

Essar has a presence in the telecom business in India under the Vodafone Essar partnership, where it has a 33 per cent stake. Vodafone Essar is the second largest mobile operator in the country. Essar also has a 9.99 per cent stake in Loop Mobile, which operates in the Mumbai circle.

The South African telecom market is an emerging one. “Though we have no pricing pressure there like in India, the cost structure in that market is different. Therefore, we might end up making just as much margin as we do in India,” the source said.

In Africa, the group is into oil and gas, too. It has three onshore assets in Madagascar and an offshore block in Nigeria. It also has a 50 per cent stake in Kenya Petroleum Refineries, which operates an 80,000 barrels per day refinery in Mombasa.

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February 1, 2010 - Posted by | Uncategorized |

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