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Debt against MTN shares to help Ambani shore up stake

Debt against MTN shares to help Ambani shore up stake
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First Published: Tue, Jun 10 2008. 11 09 PM IST

Updated: Tue, Jun 10 2008. 11 09 PM IST
Mumbai / New Delhi: Anil Ambani, chairman of Reliance Communications Ltd (RCom), will likely raise about $4 billion (Rs17,160 crore) in debt by pledging some equity acquired in MTN Group Ltd through a share swap, the first stage of a two-step merger deal being put together between the two firms, and use the cash to shore up his holding in the merged entity, people close to the deal talks said.
Such a structuring will allow Ambani to raise his stake in the merged entity to up to about 34.5%, an executive in the telecom industry said. Under South Africa’s listing laws, any new acquirer with a threshold level of 34.9% in the Johannesburg-listed firm has to offer to buy up to 100% of the shares of that entity.
/Content/Videos/2008-06-11/Josey on Rcomm Spice_MINT_TV.flv
The RCom chairman, who will be the single largest shareholder in the MTN-RCom combine, if a merger goes through, does not want to exercise the open offer option, this executive added on the condition of anonymity.
Top managers at MTN and RCom have been in exclusive merger talks from 26 May, two days after similar discussions between Bharti Airtel Ltd, RCom’s bigger rival, and the Johannesburg firm ended over the New Delhi firm’s refusal to become a subsidiary of MTN.
“To raise it to that level (34.5%), (Ambani) will buy MTN shares either from the market or negotiate with some seller,” the executive said. “He needs to raise up to $4 billion. He will do it more possibly by pledging a part of MTN shares just like Ruias have pledged their 33% stake in Hutchison Essar (to help) fund many acquisitions abroad.” The Ruias are the promoter family at the Essar business group that has interests spanning steel, oil and back-office services, besides telecom.
Due diligence, the process in which merging firms study each other’s account books and operations, is almost over, the executive added.
Another telecom executive, who is familiar with the Mikati family, one of the largest shareholders at MTN, said the merger deal is likely to go through and it is just the swap ratio that remains to be finalized. “RCom has to become a subsidiary of MTN. That was what (stopped) Bharti. As far as I know, both the Makati family and MTN management are okay to Ambani’s merger plan,” this executive, who did not wish to be identified, added.
An RCom spokesman on Tuesday said the company would not raise fresh equity or debt as part of the deal. Shares of RCom shed 0.60% to end at Rs550.80 each in a weak Mumbai market on Tuesday.
Meanwhile, discussions on an M&A transaction between Idea Cellular Ltd, Spice Communications Ltd and Telekom Malaysia Bhd are continuing, an executive close to the situation said. With the entry of Dubai-based Bahrain Telecommunications Co. (Batelco) into the discussions, a decision is likely to come soon.
One of the two options being considered involves Batelco offering to buy Telekom Malaysia’s near 40% stake in Spice Communications, one of India’s smallest mobile phone services firm with less than five million customers, and pumping in more cash to raise its equity to more than 50%.
The second option, the executive who did not wish to be identified added, was that Telekom Malaysia would pay Rs150 a share to buy a 20% stake in Idea Cellular, which would then offer to buy out the 40% stake held by the B.K. Modi family in Spice Communications at Rs77 a share.
Both these structures could not be verified with calls for comment remaining unanswered at Telekom Malaysia and Batelco. Idea Cellular’s managing director Sanjeev Aga declined comment.
Shares of Spice Communications ended at Rs55.40, up 4.14%, while Idea Cellular shares fell 1.87% to Rs99.65 each on Tuesday.
An analyst in Kuala Lumpur said Telekom Malaysia, whose shares shed 0.6% to Rinngit 3.18 each (Rs41.79), is keen on investing in emerging markets such as India and wants to replicate Singapore Telecommunications Ltd’s (SingTel) success here. SingTel has more than 30% stake in Bharti, which is valued at some $40 billion.
“By end of next year, India will have 15 mobile service operators and consolidation within Indian market makes sense. For Telekom Malaysia, merging Spice with Idea Cellular is the next best thing to do, as Idea is a best fit for the company. (Telekom Malaysia has) not been able to take it to the next level through its association with Spice,” said Marc Einstein, senior industry analyst for ICT Research at research firm Frost and Sullivan (Asia Pacific). “The talks looks as if it is in the final stages, (and) the companies may be haggling over the price.”
Moving away from its home market, which is fast saturating, Telekom Malaysia already has 40 million subscribers in Sri Lanka, Bangladesh, Singapore and Indonesia. “Through this deal, it wants to be a pan-Asian player in the region and make India the centerpiece towards reaching the objective,” Einstein said.
Lazard and Co. is advising Telekom Malaysia, Merrill Lynch and Co. is advising the Aditya Birla Group, which is the controlling shareholder in Idea Cellular, and KPMG India is advising the Modis of Spice Communications in the deal.
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First Published: Tue, Jun 10 2008. 11 09 PM IST