NEW DELHI, INDIA: Norwegian telecoms group Telenor announced a bold move to enter the Indian mobile market through a $1.1 billion deal financed by a rights issue, sending its shares down sharply on Wednesday.

Telenor, already the second-largest foreign operator in Asia after Vodafone, also reported third-quarter core profit slightly below forecast and affirmed its 2008 financial targets.

The company said it would buy 60 percent of Indian Unitech Wireless and fund it through a rights issue of about 12 billion Norwegian crowns ($1.74 billion) in the first quarter of 2009.

Unitech Wireless has licenses in all 22 mobile regions in India -- the world's second largest mobile market after China.

Analysts said the price was too high and timing wrong, and Telenor shares tumbled 15.4 percent to 38.00 crowns by 1042 GMT, while the DJ Stoxx Telecoms Index rose 5.9 percent.

Shares in Unitech Ltd, the parent company of Unitech Wireless and India's second-largest listed real estate firm, rose as much as 10 percent in the day.

"They are buying a company that does not have (operations). It is madness," analyst Martin Hoff at Arctic Securities said.

Analyst Arild Nysaether at Fondsfinans said Telenor now has to raise money at "extremely unfavourable conditions."

Chief Executive Jan Fredrik Baksaas said that in India Telenor could "replicate its experience" from Pakistan -- where it became second largest in terms of market share in four years.

Telenor also has operations in Bangladesh, Thailand, Malaysia as well as across Eastern Europe and its home Nordic markets.

'Long term value'

Telenor said that it was "solid enough" to handle a negative cashflow from India at the start of its operation.

Telenor expects to close the deal by the end of 2008 and that it would break even on EBITDA (earnings before interest, tax, depreciation and amortisation) within three years of starting operations, which will require $2 billion in capex.

"We feel that ... this is a fair and good (deal) of the long-term value for Telenor going forward," Baksaas told a news conference. "We solidly believe that this will contribute in the longer-term industrial profile for Telenor in years to come."

Head of Telenor's Asian operation, Sigve Brekke, told a news conference in New Dehli: "We need to take a long-term perspective ... even if there are a lot of dark clouds in front of us," when asked about the timing of the acquisition.

Telenor said the Norwegian government, which holds about 54 percent in the group, was willing to "put forward a parliamentary proposition to participate for its pro rata share of the rights issue".

Telenor's EBITDA fell to 7.35 billion Norwegian crowns in July-September from 7.66 billion in the year-ago period. The result lagged an average forecast of 7.51 billion crowns in a Reuters poll of 19 analysts, but was within the range of estimates from 7.27 billion to 7.66 billion crowns.

Telenor said it expected an operating cash flow dilution of about 90 percent in 2009 and 40 percent in 2010 after the acquisition. It said its dividend policy remained unchanged.

Foreign players have been interested in picking up stakes in Indian telecom firms to cash in on the more than 9 million new mobile subscribers every month that makes the country the world's fastest-growing market for wireless services and the second-largest such market after China.

India had 315 million mobile users among its 1.2 billion population as of end-September and mobile penetration in the country is about 26 percent. Consultancy Gartner forecast a subscriber base of 737 million by 2012.

Telenor said Unitech aimed to launch services in mid-2009 and had 250 employees and pan-Indian telecom licences.

Telenor repeated its outlook for 2008 revenue growth of about 3 percent, an EBITDA margin of above 31 percent and capital expenditure at around 20 percent of revenues.