Reliance Communications stake still up for sale as Etisalat bows out of talks
15 September 2010 |
A 26% stake in Indian telco Reliance Communications remains up for sale following the breakdown of talks with the UAE’s Etisalat.
The deal foundered mainly on account of Etisalat’s 45% stake in mobile operator Swan Telecom, which it bought in 2002 for $900 million. Indian telecoms regulations prohibit any company from holding a stake of over 10% in two mobile companies operating in the same area.
While there has been much media speculation about further attempts by Etisalat to buy into Reliance, senior consultant at Pyramid Research Berge Ayvazian believes that the deal is effectively dead: “For the deal to go through, Etisalat would have to exit its commitments with Swan, return the licence back to the government or look at a complex reverse merger formula with Reliance Communications,” he said. “Either method would cause a major restructuring of the Indian mobile market, and would be subject to considerable regulatory risk.”
Reliance Communications has been seeking a 26% divestment since it revealed its net debt had reached $4.3 billion for the year ending March 2010. The company has invested heavily this year, including $1.8 billion for a 3G licence in 13 Indian regions in a recent auction. As the company’s board of directors stated in June, the sale was because of “appropriate strategic consolidation opportunities in an effort to reduce its debt burden given the high cost of rolling out 3G services”.
A 26% stake in Reliance is estimated to be worth up to $3 billion. US operator AT&T and South African telco MTN have both been linked to the company with a view to enhancing their presence in India.
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