Reliance Communications approves stake sale

[June 07, 2010]  MUMBAI, India (AP) -- India's Reliance Communications has approved a plan to sell a minority stake to a bidder like Etisalat, AT&T or MTN Group, sending its stock up as much as 6.5 percent in Monday trading.

Reliance said Sunday its board has approved selling up to a 26 percent equity stake to strategic or private equity investors, and gave the go-ahead for other "strategic combination opportunities."

The company named no potential suitors, but an official with knowledge of the talks said Monday that discussions were most advanced with Dubai-based Emirates Telecommunications Corp., or Etisalat, for a 26 percent stake sale valued around $4 billion.

The official, who spoke on condition of anonymity because discussions are ongoing, said Reliance Communications was also in "exploratory talks" for a similar deal with AT&T and South Africa's MTN Group.

Reliance Communications executives have spoken with executives from AT&T and MTN, but formal talks have not commenced, he said.

Reliance, controlled by billionaire Anil Ambani, is the only major Indian telecom not to have a foreign partner.

A prior effort to bring in an outside investor -- South Africa's MTN Group -- through a share swap was blocked by Anil's older brother Mukesh in 2008, who said a noncompete clause in a family agreement gave him right of first refusal over Reliance Communication shares.

The official said Monday that the companies are not considering rekindling that equity swap model, but are focused instead on a possible minority stake sale.

The two brothers scrapped their noncompete clause two weeks ago, after the Supreme Court ordered them to renegotiate a gas sale agreement that was also enshrined in the family memorandum, which divided their father's empire.

Reliance, India's second largest mobile phone company with 109 million subscribers, had net debt of 199 billion rupees ($4.4 billion) on March 31, and it just had to pay the Indian government an additional 85.9 billion rupees ($1.8 billion) for third-generation spectrum. It is also likely to require fresh capital to roll out 3G and Wimax services.

Etisalat has told reporters that it is exploring several options in India, including a deal with Reliance, but its bid would be complicated by Indian regulations, which prohibit existing players from owning more than 10 percent in a competing telecom firm.

Etisalat paid $900 million in 2008 for a 45 percent stake in Swan Telecom, controlled by Indian real estate group DB Reality. That venture has been slow to get off the ground.

AT&T declined to comment on media reports that it has entered informal discussions about a potential transaction.

South Africa's MTN Group has reportedly denied that it is exploring resuming merger talks.

India has the fastest-growing large telecom market in the world, with nearly 600 million subscribers expected to grow to 850 million in four years.

But with 10 to 12 players competing for subscribers in most areas -- many of whom want low-cost rather than premium services -- call rates have plummeted to less than one cent a minute in some cases, driving down margins.

[Associated Press; By ERIKA KINETZ]

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