2G Spectrum: UAE's telecom operator

Etisalat to shut down India joint venture

ET Bureau Feb 23, 2012, 04.28AM IST

United Arab Emirates' telecom operator Etisalat on Wednesday said it would shut down its
India joint venture, making it the second foreign company after Bahrain Telecom to exit the
country following the Supreme Court's decision early this month to cancel 122 telecom
licences issued by government of India in 2008.

While the decision will impact about 1.7 million customers, who have time till June to
migrate to a new operator, over 2,000 employees would also be laid off.

Etisalat were shutting down operations in India.

The cancellation of licences also resulted in Bahrain Telecommunications exiting India by

selling its 43% stake in mobile phone company S Tel back to its Indian affiliate. Etisalat
owns 45% stake in Swan Telecom, which has been renamed as Etisalat DB.

It is learnt that both Etisalat and S Tel plan to claim damages from the government on the
grounds that they had invested in mobile permits granted by the Centre as per the existing
policy and also that they entered this market only after the licences had been awarded.

Earlier this month, Etisalat said it was taking $829-million hit on its Indian earning after the
Supreme Court had cancelled 122 licences, including 15 permits held by the Gulf carrier's
JV.

The telco said it will take a call on coming back in the Indian market when it sees clarity on
the auction process, stable policy, legal and regulatory framework in the telecoms sector.

Etisalat DB's services had collapsed in most parts of the country last month, after it company
failed to clear its due to Reliance Communications (RCOM), with which it has an
infrastructure sharing arrangement, and so far it had not revived operations. In a related
development, Reliance Infratel, the infrastructure arm of RCOM, has approached the
telecoms tribunal on Wednesday to recover 1,200 crore from Etisalat DB that had taken its
telecom towers on lease in a 10-year deal. The tribunal is expected to hear the matter on
Thursday.

The Arab world's second largest telecom company by market value said its board had
'unanimously resolved' on Wednesday evening to reduce operating costs and suspend
services. "The decision has been taken in order to protect the interests of all stakeholders and
to avoid incurring further costs at this time of rapid change and continued uncertainty in the
Indian telecommunications sector," the telco said in a statement.

The telco shelved its expansion plans after DB Realty's promoters were arrested in the 2G
spectrum allocation scam in February last year.
The CBI in its chargesheet said that Swan Telecom was a front for Reliance Telecom, a
subsidiary of Reliance Communications owned by the Reliance ADA Group. The probe
agency said that Tiger Traders held a majority stake in Swan and was an 'associate' company
of Reliance ADA Group. This was a violation of telecom rules that do not allow a company
to own more than 10% stake in two telcos operating in the same circle.

I n the late 1990s, Arun Firodia, chairman of the Kinetic Group, was reportedly made an offer by Honda Motor Company to buy

its 51 per cent stake in the troubled joint venture company, Kinetic Honda Motors.

By September 1998, the Pune-based two-wheeler company finalised plans of buying the Japanese company's stake for Rs 35

crore (Rs 350 million), much to the surprise of most automotive enthusiasts and industry big-wigs.

It held just 19 per cent in the company.

The JV company faced trouble, locally, as it tried to sell scooters in a market, which was fast progressing to easy-on-pocket

high mileage motorcycles.

This was around the same time when Bajaj's famed geared scooter Chetak witnessed a downtrend.

Similar to the Kinetic Honda story, India has seen multiple instances of termination of agreements in joint venture contracts,
most of which were formed in the early 1980's (see table).

While some agreements were signed to form joint venture companies, others were formed for arrangement of a technical

alliance.

One of the main reasons why joint ventures haven't been able to sustain itself for as long as Hero Honda (26 years), say

experts, is because of lack of a strong foothold in the Indian market due to weaker brands, which in turn lead to financial losses.

"While BMW's launch of the superbike in 1995-96 was considered by many as a product much ahead of its time, some other

products had to be killed because of heavy competition.

The RX 100 by Yamaha was low on mileage and a polluting motorcycle.

Demand started to fall drastically when there were better options available," said an automotive expert attached with a

consultancy firm.

Other JVs that failed

Joint Venture Models Reason for break-up

Hero-BMW F650 Poor consumer response

Fiero, Max 100,

Suzuki-TVS Ownership issues
Shogun, Shaolin

Yamaha-Escorts RD 350, RX 100 RX 135, Falling demand

 Kinetic-Honda Zoom, DX, Marvel Kinetic buys partner's stake

Kinetic-Hyosung Aquila, Comet Steep pricing

LML-Piaggio Vespa 150 NV LML bought partner's stake

While in the case of Kinetic Honda, the Japanese company appeared not so keen on growing the JV business as the India
company wasn't allowed to manufacture most type of two-wheelers except mopeds, Suzuki wished to have complete

management control of Chennai-based TVS Motors much to the reluctance of the India company's promoters.

Venu Srinivasan, chairman and managing director, TVS Motors, had built the company from scratch with an able research and

development wing.

TVS Motors launched indigenously built products while simultaneously launching models developed jointly by the joint venture.

The two companies finally parted ways in September 2001 where a TVS Group promoter company bought Suzuki Motor

Corporation's stake for Rs 15 per share, while the share price of TVS-Suzuki closed at Rs 87 per share on the Bombay Stock

Exchange on the day of terminating the JV

V G Ramakrishnan, senior director, Frost & Sullivan said, "There is no reason for companies to form joint ventures
internationally as they have a brand presence there.

The emergence of the new markets like China and India has happened only in the last decade.

The only way to enter these markets was through a joint venture because of government policies."

"Most international companies want to have management control in their respective joint ventures. Once a substantial amount

of business was generated there was no longer any need to continue with the operation," he said.

Kinetic Motors did try to develop products on its own after the break-up with a few launches in the motorcycle segment.
However, the company which once had a leadership position in the ungeared scooter segment, lost out to competition in the

bike segment.

Kinetic later tried for an association with Italian and Taiwanese companies and had successfully brought their foreign bikes and

scooters to the Indian market.

However, due to poor response for its offering, even these associations was called off.

The company's brand name and its assets were eventually sold to Mumbai-based conglomerate Mahindra & Mahindra for Rs

110 crore (Rs 1.1 billion).

M&M later renamed it Mahindra Two Wheelers.

Hero, Honda split terms finalized
Pankaj Doval, TNN Dec 16, 2010, 05.52am IST
Tags:

NEW DELHI: It's finally splitsville for Hero Honda, one of corporate India's oldest and most
successful joint ventures , with the two founding partners—India's Munjal family and Japan's
Honda Motor Corp—agreeing to part ways and terminate the 26-year-old relationship due to
unresolved differences and ambitious independent plans.

Sources in the know said most of the terms of the deal, which will see Honda selling its 26%
stake to the Munjal family, have been finalized and the matter will now be taken up by Hero
Honda's board on Thursday. Top officials of Honda are arriving here to attend the board
meeting , a source said.

The sources added that the Japanese auto major will exit the JV through a series of offmarket
transactions by giving the Munjal family—that currently holds 26% stake in the company—
an additional 26%. Honda, which also has an independent fully-owned twowheeler
subsidiary—Honda Motorcycle and Scooter India (HMSI)—will exit Hero Honda at a
discount and get over $1 billion for its stake. The discount will be between 30% and 50% to
the current value of Honda's stake as per the price of the stock after the market closed on
Wednesday.

The Munjal family plans to compensate Honda through high royalty payouts, which could
double to nearly 6% of net sales. However, key financial institutions have objected to this
move, saying that the deal could favour the Munjals but be detrimental to other shareholders.

Spokespersons for Hero Honda and the Munjal family refused to comment on the
development .

Sources said as per the arrangement , it will be a two-leg deal. In the first part, the Munjal
family, led by Brijmohan Lal Munjal group, will form an overseas-incorporated special
purpose vehicle (SPV) to buy out Honda's entire stake, which will be backed by bridge loans.
This SPV would eventually be thrown open for private equity participation and those in the
fray include Warburg Pincus, Kohlberg Kravis & Roberts ( KKR), TPG, Bain Capital and
Carlyle.

"The PEs will take between 50-60 % stake in this entity , giving them just under 15% stake in
the main company Hero Honda, which would soon sport a new name," the sources said.

Hero Honda, credited with putting the Indian middleclass on wheels, defied its humble
beginnings to quickly emerge as the world's biggest two-wheeler maker, also ending the
stronghold of Bajaj scooters in the country.

Tech, spares major irritants

Hero Honda's lowcost and highly-fuel efficient bikes (remember the classic 'Fill it, Shut it,
Forget it' campaign ) quickly emerged as the most-popular and convenient mode of transport,
catapulting the company into the global league of two-wheeler biggies.

However, it was the rising differences between the two partners that gradually emerged as an
irritant. Differences had been brewing for the last many years over a variety of issues,
ranging from Honda's reluctance to fully and freely share technology with Hero (despite a 10-
year technology tie-up that expires in 2014) as well as Indian partner's uneasiness over high
royalty payouts to the Japanese company. Another major irritant for Honda was the refusal of
Hero Honda (mainly managed by the Munjal family) to merge the company's spare parts
business with Honda's new fully-owned subsidiary Honda Motors India (HMI).

Sources said a large number of people from the Munjal clan are also suppliers to Hero
Honda, giving undue advantage and benefit to the Indian promoter. But to the discomfiture of
the Munjals, Honda wanted a more competitive approach to component procurement , that
may have seen the end of many of these suppliers.

"The differences became too big to allow a harmonious existence," the sources said.
Simultaneously , Honda's ambitious plans for its two-wheeler subsidiary HMSI also gave the
confidence to the company to go it alone. HMSI has singlehandedly revived the scooter
market in India and has been gradually gaining ground in motorcycles as well. A bullish
Honda wanted a solo say in the running of its business, and HMSI's success gave it the
confidence to go for a split.

HMSI has seen sales growing 42% in April-November this fiscal and it is setting up a second
plant-—with a peak capacity of 1.2 million units—to boost operations. Its plant at Manesar
has a capacity of 1.6 million units. Honda is expected to launch a slew of new models,
including lowpriced bikes to challenge Hero Honda and other competitors . The exit of
Honda has, however, beaten the Hero Honda scrip as investors feel that it may not have the
wherewithal to independently provide technology support.

A 26-year-old partnership between Japan’s Honda Motor and India’s Hero Group
ended on Thursday. Announcing the break-up of joint venture company Hero
Honda Motors Ltd (HHML), Pawan Munjal cited changing market dynamics 19Share
coupled with ambitions of growing beyond India as the two compelling reasons for
the split.
+ -
Under the present agreement, HHML was not permitted to tap overseas markets,
seek technology from any other company and even participate in large scale Related links
exports.

 Auto sales find traction in January

Terming the deal as beneficial to all stakeholders, including small shareholders,
Munjal, CEO and managing director (MD) of HHML, said the Hero Group will  buy Two-wheelers seen running out of
out Honda’s 26% stake in the company by raising debt initially. He did not gas, too
disclose the price at which Honda has agreed to sell its shares. As per the current
share price, Honda’s stake is valued at close to $2 billion. Reports have
 Piaggio to roll out Vespa by March
for the third time
suggested that the Japanese are willing to sell out at 30-33% discount.
 'Hero will roll out own bike by 2015'
Munjal declined to confirm if there was a lump sum royalty payment. He said  At Rs7 lakh, Honda City can now
 be all yours
Hero’s royalty payment to Honda would start declining from next year, adding that
media reports saying royalty payments could go up significantly after the  Forbes list: Mukesh Ambani richest
termination of the joint venture were incorrect. Munjal also clarified that the deal Indian, Anil biggest loser
envisages a new technical agreement, which will cover existing as well as new Gallery
products till 2014.

“For the company and for me personally, this is one of the most important
announcements I have made in the last 25 years... through the new arrangement,
Hero will be free to launch its own products, get its own R&D capability.” Munjal
said.

“The new licensing pact will provide us not only new products, but also new
platforms... there couldn’t have been a better deal than this for all stakeholders,”
Munjal said. DNA Drive: Volvo S60 sedan a
brilliant option indeed

“We are not selling off our stake in HHML to make money. We realised that Hero
has its own vision and Honda, its own... when the joint venture was inked over
two decades back, it was a totally different world... we had to respect their vision
and had to unwind our holdings,” explained Fumihiko Ike, Honda’s MD and COO
for regional operations (Asia and Oceania).

Munjal said a definitive agreement will be signed over the next few weeks and the
actual buyout of Honda’s stake should be completed by next year.

Reliance Communications
Forms Rural JV With
Kribhco
By Nikhil Pahwa on Jun 10th, 2009 | 6 Comments and 0
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Government promoted
co-operative society Krishak Bharati Cooperative Limited
(Kribhco), has formed a joint venture with Reliance
Communications for retailing customised telecom products
and farmer specific value added services in rural India. The
joint venture company is called Kribhco Reliance Kisan
Ltd, according to the co-operatives 2008-2009 highlights
report. Business Standard adds that Kribhco will hold 60
percent in the company, while Reliance ADA Group will
hold 40 percent.

While services will

initially focus on RCOM, but could be expanded to include
other Reliance ADA group companies like Reliance
Capital, Reliance Entertainment and BIG TV, RCOM
President (Wireless) S.P. Shukla told Business Standard.

Kribhco manufactures fertilizer, and has a large distribution

channel for retailing telecom services. The urban centres –
metros, B & C class towns are fast becoming saturated, and
telecom operators are looking for ways and means of
providing telecom services to rural markets in India, which
remain largely underpenetrated. Kribhco will provide
RCOm with a distribution channel of around 25,000 co-
operatives.

This deal mirrors another rural joint venture formed

between Bharti Airtel and IFFCO for rural services. In case
of the Airtel-IFFCO joint venture, IFFCO also retained a
majority stake at 50 percent, while Bharti Airtel and Star
Global kept 25 percent each. Services they offered
include voice updates on mandi prices, farming techniques,
weather forecasts, as well as the marketing of IFFCO
fertilizer availability to the farmers,