Telco in India - Reliance

By Saikat Chatterjee
June 7 (Bloomberg) -- Reliance Communications Ltd., controlled by Indian billionaire Anil Ambani, may raise 90.5 billion rupees ($1.9 billion) if it sells a 26 percent stake at the current market price to fund expansion after it acquired 3G licenses.
Mumbai-based Reliance Communications, which paid 85.9 billion rupees to the government in license fees for third- generation mobile-phone frequencies, said yesterday its board “in principle” approved the sale of as much as 26 percent to a strategic or private-equity investor. AT&T Inc. had preliminary talks to buy a stake in Reliance, the Wall Street Journal reported yesterday, citing people familiar with the situation.
The stake sale may help India’s second-biggest mobile-phone operator to cut debt and expand in the world’s largest wireless market by subscribers after China. The license fees paid by operators such as Reliance have stoked concerns that the companies won’t be able to recoup their investments and that interest costs on their debt will surge.
“With the kind of capital expenditure that the company would need going forward it may require an infusion of funds,” said Rahul Jain, a Mumbai-based analyst with Angel Broking Ltd., who has a “neutral” recommendation on the stock. Reliance’s plan to sell a stake in its mobile-phone tower business to the public “may not happen” because of the current market, he said.
Reliance Communications, the nation’s second-largest mobile phone operator, has filed a draft prospectus for an initial share sale of 10 percent of tower operator Reliance Infratel Ltd. on Sept. 24.
Price Competition
Revenue in the mobile-phone services industry is poised to fall 22 percent for the year after declining 25 percent in 2009, according to estimates from Bank of America Corp.’s Merrill Lynch unit. Vodafone Group Plc on May 18 booked a $3.3 billion charge for its Indian unit, citing “intense” price competition. Mobile-phone calls cost as little as 1 U.S. cent per minute in India.
“The competition in the Indian market is getting intense and is showing no signs of stabilizing at all,” said Jain.
At the close of trading in Mumbai on Friday, Reliance Communications was worth $7.4 billion. The stock has dropped 49 percent in the past 12 months compared with a 15 percent gain for the Bombay Stock Exchange’s benchmark Sensitive Index. Larger rival Bharti Airtel Ltd. shed 31 percent during the same period.
‘Various Proposals’

In India, 3G offers carriers the opportunity to revive earnings growth and generate more revenue through faster data services used to download music and surf the Internet.
Reliance Communications said June 2 it had received “various proposals” from overseas companies, commenting after the Times of India newspaper reported Emirates Telecommunications Corp., known as Etisalat, was in advanced talks to buy a 25 percent stake. Etisalat spokesman Ahmed Bin Ali said on June 2 that Indian operators were among companies being looked at for possible investment, without specifying Reliance Communications or a timeframe for any deals.
The Economic Times reported on June 1 that the Indian company may restart merger talks with South Africa’s MTN Group Ltd., after earlier negotiations collapsed in July 2008.

Reliance will sell shares at an “appropriate premium to the prevailing market price” and “examine and pursue other appropriate strategic combination or consolidation opportunities,” the company said in its statement yesterday. It didn’t provide any names of potential buyers.

(source - Bloomberg)