New Delhi/Amman: Abu Dhabi’s Etisalat is looking at a deal with Reliance Communications as it mulls its options in India, while media reports named US telecoms giant AT&T as another potential investor in India’s No. 2 mobile player.
A frenzy of deal-making speculation has surrounded the Indian company, the only major local cellular carrier without a foreign strategic investor in the world’s fastest-growing mobile market.
Valued at about $7.7 billion, Reliance Communications said on Sunday it was open to selling a stake of up to 26% to strategic or private equity investors.
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Talk about a stake sale started soon after controlling shareholder Anil Ambani and his long-estranged brother Mukesh ended an agreement that forbade them from competing on each other’s turf, freeing Anil to bring new investors into his debt-laden company.
Reliance Comm’s board has approved selling up to 26% at a premium, and at current market prices, the stake is worth about $2 billion.
The Indian mobile carrier did not give a time frame or any details about a possible deal, but media reports and a person familiar with the matter had previously cited Abu Dhabi’s Etisalat and South Africa’s MTN as potential partners.
“We did not make any offers to Reliance. We’re studying several opportunities in India, among them is Reliance,” Etisalat chairman Mohammad Omran told Reuters in Amman on Monday.
“India is a large market and we are closest to India. But we’re studying several acquisitions,” he said, citing new licenses that will become available in Syria and Iraq.
“We don’t have a liquidity problem,” he said.
AT&T, the biggest US phone company by revenue, declined to comment on a report in the Wall Street Journal that the companies had talked about a transaction. The New York Times also reported that AT&T was in preliminary talks with Reliance Comm.
One person familiar with the matter described the state of talks with AT&T as “very early feelers” as opposed to formal discussions.
Finding a buyer willing to pay a high premium for a minority stake in Reliance Comm may be a challenge given the ongoing price war in India’s 15-player cellphone market and the heavy capital expense needed to build out third-generation mobile networks.
Reliance Comm shares rose 14% last week on talk of a deal but still ended Friday 80% below their early 2008 peak.
In a sign of just how bruising India is, UK giant Vodafone said last month it would take a charge of £2.3 billion ($3.3 billion) on its India business and is also fighting a $2.56 billion tax bill in the country.
Market leader Bharti Airtel, searching for more attractive opportunities elsewhere, is paying $9.7 billion to buy Zain of Kuwait’s Africa operations. Bharti is about one-third owned by Singapore Telecommunications.
“The event would indeed be positive for RCOM, if it happens, however, we would view it as negative for the sector,” Kotak Securities analysts wrote in a note on Monday.
“This event would mean a further infusion of risk capital in the industry, without leading to any consolidation,” they said.
Reliance Comm had net debt of Rs19,900 crore ($4.2 billion) at the end of March and last month paid Rs8,585 crore for a 3G licences in an auction that was far more costly than had been forecast. A stake sale would help it cut debt.
AT&T has long been interested in India, which boats 600 million cellular subscribers.
The US giant sold its stake Idea Cellular in 2005, though it continues to offer other services in the country. In 2007, it applied for an all-India telecoms licence, but is still waiting for approval. The company had been seen to be a possible bidder for 3G spectrum but ended up staying away.
A Reliance Comm official could not immediately be reached for comment on Monday.
“Some of these major players who are not present in India, if they want to give a sense to their shareholders that we are not missing the India cake, we are not missing the India theme as a strategy, so probably they may find it useful,” said Jagannadham Thunuguntla, equity head at SMC Capitals in New Delhi.
Reliance Comm shares rose as much as 6.5% on Monday before closing 4.6% higher, outperforming a broader market that lost nearly 2%. More than 11 million shares traded, nearly six times its 30-day average of 1.97 million.
Reliance Comm also said its board had approved pursuing other “appropriate strategic consolidation opportunities”.
Etisalat, which already has a start-up joint venture in India, said last week it was looking to buy a stake in an Indian operator and was in talks with several firms.
The Times of India newspaper last week said Etisalat, the Gulf region’s biggest provider of telecoms services, was in advanced talks to buy a quarter of Reliance Comm for 180 billion rupees ($3.8 billion), a healthy premium.
Separately, Economic Times newspaper had reported that Reliance Comm was considering a merger with MTN, with which the Indian firm had held tie-up talks in 2008.