India’s Reliance Communications to Sell 26% Stake

Short on cash after the latest 3G spectrum auction in India, second place Reliance Communications is looking to shore up assets by approving the sale of a minority stake of up to 26% to investors.  Unnamed sources suggest Dubai’s Emirates Telecommunications Corp (known as Etisalat) may buy the shares for $4 billion.
Etisalat chairman Mohammed Omran said in Amman, Jordan that “We have not made an offer, but we are studying several opportunities in India, among them is Reliance Communications.  The market in India is going through a consolidation and we want to be an active player.”
However, Etisalat’s purchase may be prohibited under India’s anti-competition rules which limit existing carriers from owning more than 10% of a competing carrier.  Etisalat owns 45% of Swan Telecom from a previous deal in 2008 worth $900 million.  That venture has not been successful so far.
Previously interested investor South Africa’s MTN Group declared through its executive for corporate affairs, Nozipho January-Bardill, that it is “emphatically” not interested this time around.  The original deal fell apart in 2008 after an internal squabble among family member-owners of Reliance.
News services report that US based AT&T may be interested in growing outside of the mature US market.  AT&T’s most recent activity in India was the 2005 sale of its stake in third place Idea Cellular.
Wireless telecommunications investments in India are attractive as it remains one of the fastest growing markets globally with 600 million subscribers currently and expected to increase to 860 million over the next four years.
Manoj Mohta, head of Crisil Research, explains investor interest in India by saying that “The number of subscribers we are adding on an annual basis is larger than the subscriber base in most geographies.  As of now no one can come on a stand alone basis. The licenses are not available.”
However, with 15 competing wireless carriers and strong consumer preference for cheap pricing over premium services, revenues have dropped precipitously.  Meanwhile, expensive 3G bandwidth auctions and associated equipment upgrades have significantly increased investment costs.
At 109 million subscribers, Reliance is the fourth largest telecommunications brand in the world.  Shares of Reliance (RLCM.BO) are up 23.7% since the beginning of this month.