Etisalat eyes options in India; RComm on radar

NEW DELHI, INDIA: Abu Dhabi's Etisalat said it was studying options in India, including a deal with Reliance Communications, while U.S. telecoms giant AT&T was named in media reports as another potential investor in India's No. 2 mobile player.

Reliance Communications, with a market value of about $7.5 billion, said on Sunday it was open to selling a stake of up to 26 percent to strategic or private equity investors.

A frenzy of deal-making speculation has surrounded the company, the only major Indian cellular carrier without a foreign strategic investor in the world's fastest-growing mobile market.

Talk 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.

On Sunday, Reliance Comm said its board approved selling up to 26 percent at a premium to its current market price, which at current market prices would be 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.

AT&T, the biggest U.S. 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.

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 percent last week on deal talk but still ended Friday 80 percent below their early 2008 peak.

Bruising Market

In a sign of just how bruising India is, UK giant Vodafone last month took a charge of 2.3 billion pounds ($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 Monday note.

"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 199 billion rupees ($4.2 billion) at the end of March and last month paid 85.85 billion rupees 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 U.S. 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.

Shares Outperform

Reliance Comm shares rose as much as 6.45 percent early on Monday before easing to a gain of over 3 percent, outperforming a broader market that was off by 2.3 percent. More than 6.4 million shares were traded, three times their 30-day average full-day volume of about 2 million shares.

Reliance Comm also said that 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, India's Economic Times newspaper reported last week Reliance Comm was considering a merger with MTN, with which the Indian firm had held tie-up talks in 2008.

One person familiar with the matter said last week a deal with Etisalat was a more mature possibility than one with MTN.

An MTN spokeswoman said on Sunday the company was not in talks with Reliance Comm.