The board of Reliance Communications (RCom), the flagship telecom company of Reliance Anil Dhirubhai Ambani Group (ADAG), has given an in principle approval to a proposal to dilute 26% equity in a strategic sale. It is learnt that the stake dilution is meant to finance future expansion plans such as the rollout of 3G mobile services.

Meanwhile, on Sunday, the Wall Street Journal reported that RCom and the US telecom giant AT&T Inc. will sign a deal where AT&T would take a significant minority stake in the Indian cellphone company.

A press statement issued by RCom on Sunday, said, “The board of directors of Reliance Communications Ltd has approved in principle the induction of strategic/private equity investors into the company for an up to 26 per cent equity stake at an appropriate premium to the prevailing market price,” the company said in a statement. RCom is nation's second-largest mobile phone service provider with 109 million subscribers including over 2.5 million individual overseas retail customersand a market capitalization of $7.4 billion.

Media has widely reported that RCom was in talks with South Africa-based MTN and UAE’s Etisalat for offloading part of its stake. Later, MTN clarified that they were not in talks with RCom.

Following the reports, RCom shares rose to Rs 168.15 on June 4, a growth of more than 25% from Rs 133.40 on May 21 on the BSE. Recently, the Ambani brothers decided to terminate the earlier the no-compete agreement of 2005 between the two groups which now allows the siblings to enter into each other's domains.

According to the WSJ report, the companies (RCom and AT&T) have been in touch in the past few weeks to explore the idea although these discussions have been characterised as very early. AT&T, the largest US telecom company with 87 million wireless subscribers, is eyeing international expansion as the domestic cellphone market saturates, sapping future growth potential. India is a particularly attractive target, with over 600 million wireless customers already and carriers adding 17 million new ones per month, the report said.

One remaining issue for AT&T in any Reliance deal is that the US company would prefer to get a controlling, rather than a minority stake in any significant international transaction. Mr. Ambani, who owns over 67% of Reliance Communications, is not interested in giving up majority ownership, WSJ reported quoting a person familiar with the matter. In the past, AT&T has been scared off by high stock market valuations in India, people familiar with the matter say. But the price of a deal with Reliance has gotten more attractive lately, with the company's shares down about 50% in the past 12 months, the report added.

The Reliance Anil Dhirubhai Ambani Group currently has a net worth in excess of Rs 64,000 crore, cash flows of Rs 13,000 crore and net profit of Rs 8,400 crore.

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