Reliance Communication May Dilute 26% Stake !

[Honest 836]

Reliance Communication may dilute 26% stake

Economic Times l 11 Dec l New Delhi

Strategic investors, including telecom groups from the US and Europe, are in talks with the Anil Ambani-led R-ADAG to acquire around 20-26% stake in Reliance Communications (RCOM) — India’s second-largest mobile operator by subscribers, according to a banker.

Talks are on for a two-phased transaction, which will first see the strategic investor picking up shares in the company from the secondary market, and then being issued fresh shares through the preferential allotment route, the banker told ET, requesting anonymity.

The source said the transaction would be ‘biased’ in favour of secondary market purchases, as RCOM is not interested in a substantial equity dilution. The deal will also hinge on whether RCOM can get a big premium over its current market price. The company’s market capitalisation is down 70% over the past one year to under $10 billion. RCOM declined to comment.

Last month, Japan’s NTT DoCoMo acquired a 26% stake in Tata Teleservices (TTSL) in a deal that valued the Indian company at around $9 billion. TTSL, which uses the CDMA technology like RCOM, has around half the number of subscribers as RCOM, prompting analysts to suggest that the R-ADAG company could be expecting a valuation of between $18 billion and $20 billion.

RCOM’s listed status means that once the strategic investor’s holding crosses 15%, it will have to make an open offer to acquire an additional 20% equity. The banking source said the transaction would be structured in such a way that even after the open offer, the share holding of the strategic investor will not rise significantly beyond 26%.

“The promoter, who owns 67%, is not selling equity and nor will he participate in the open offer. The issue of fresh shares will be calibrated in such a way that after the open offer, the free float of the company will be around 15%,”said the source.

He added, At a $20-billion valuation, even a 5% dilution will fetch RCOM around $1billion.

The company could used the funds for the upcoming government auction to acquire third-generation (3G) spectrum and network rollout. Analysts estimate RCOM will have to shell out more than $500 million for 3G spectrum and invest an additional $1 billion for network rollout.

The names of the potential suitors are not known. However, international telcos such as France Telecom, Deutsche Telekom, Telecom Italia have all previously expressed interest in entering India, the world’s fastest-growing major mobile market. Telecom Italia was involved in talks to buy a controlling stake in Unitech Wireless, while France Telecom was in the running for the TTSL deal. US-based telcos AT&T and Verizon, too, have been scouting for an opportunity to enter India.

A stake in RCOM will offer the overseas telco exposure to the fast-growing Indian telecom market that is adding around 10 million new subscribers each month. In addition to being India’s largest CDMA operator, RCOM also has operations in the rival GSM technology. Its combined subscriber base stood at around 58 million at the end of November. The company plans to extend its GSM services from eight circles presently to the rest of the country within the next couple of months. It will also bid for licences to offer 3G services early next year.

Foreign companies eyeing the Indian market don’t have many choices when it comes to investment options. Britain’s Vodafone Group bought a controlling stake in the Indian unit of Hutchison Telecom last year. In the past two months, two new licensees — Unitech Wireless and Swan Telecom — found investors in UAE’s Etisalat and Norway’s Telenor.

After the DoCoMo-TTSL deal, RCOM is the only major Indian operators without a foreign partner. While foreign companies can directly bid for 3G spectrum, they will have to find an Indian partner as rules do not allow more than 74% foreign ownership in Indian telcos. These companies will also have to stump up an additional Rs 1,651 crore ($300 million) towards a so-called UASL licence, which is a must to launch any form of telecom services.

[Honest 836]

RCom jumps on FCCB buyback, stake sale talk

Business Line l 11 Dec l Mumbai

Reliance Communications shot up close to five per cent on Thursday on reports that global telecom companies are eyeing a stake of up to 26 per cent in the company.

The share price rose 4.8 per cent to close at Rs 239.2 hitting an intra-day high of Rs 249.4.

In a statement to the exchanges in response to the reports, RCom said it has been receiving various proposals from time to time from “reputed telecom international companies” expressing interest in acquiring a stake in it and that “it evaluates such proposals”.

Marketmen said that they were “sceptical” about reports of a possible stake sale in the company.

On Wednesday too, the RCom stock had shot up on reports that the company might buyback the second tranche of its foreign currency convertible bonds (FCCB). The share price was up ten per cent to close at Rs 228. On the FCCB matter, sources close to RCom said that with the gap between the share price of RCom against its FCCB conversion price narrowing in the last two weeks, it did look like an opportune time for the company to buyback its FCCBs.

They said such an option is being considered by the company and would of course be subject to shareholder approval.

FCCB issue

RCom’s FCCBs are listed on the Singapore Stock Exchange and, till about two weeks ago, the company’s shares in the domestic bourses were trading at a discount of more than 50 per cent to the FCCB conversion price.

“Now the discount has narrowed down by 15 per cent to about 35 per cent. Given the size of its FCCB issue (it was for $1 billion), Reliance Communications’ buying back a part or the whole would be a good move. And it does provide a good yield,” said the source. He also said that a formal decision might be made in the next fortnight or so.

Reliance Communications had, in February of last year, issued zero coupon FCCBs to raise $1 billion (around Rs 4,000 crore). The instrument has a tenor of five years (February 2012) at a conversion price of Rs 661 a share, which was at 30 per cent premium over RCom’s then prevailing market price.

The global issue sold across Asia, Europe and the US, was over subscribed three-four times. The proceeds were meant for RCom’s capital expenditure of $2.5 billion during 2007-08.

RCom had, in May of 2006, issued another set of FCCBs to raise $500 million, for which the conversion price was set at Rs.480.68 and this tranche will expire in May 2011.

Following last month’s RBI measures, companies are permitted to buy back their FCCBs either with their forex resources/or after fresh issue of ECBs. The RBI on Saturday announced that it has also now allowed companies to buy back FCCBs out of rupee resources provided that the buyback amount is limited to $50 million and the resources are drawn out the company’s internal accruals.

Best performer

With all these reports it comes as no surprise that RCom is the best performing stock in the Sensex pack for the past one week, said marketmen. It is the only stock scrip that has gained close to 22 per cent in the past week; the only other scrip to have gained 20 per cent is DLF.

RCom has also gained the most among the BSE TECk stocks in the last week.

[savramesh 37]

The Hindu

Tuesday, April 14, 2009 : 1715 Hrs

Reliance Communications buys back Rs 25.26 crore FCCBs

Mumbai (PTI): Anil Ambani-led Reliance Communications on Tuesday said it has bought back Rs 25.26 crore (about USD 5 million) foreign currency convertible bonds (FCCBs) at discount from the international markets.

In a filing to the Bombay Stock Exchange, Reliance Communications said it has bought back 50 zero coupon FCCBs aggregating Rs 25.26 crore.The repurchased bonds are expected to extinguish on April 15, 2009, it further added.

Last year, the Reserve Bank of India had allowed the corporate houses to buyback FCCBs from the foreign markets if they are trading at a discount of 25 per cent from their book value.

On Monday, shares of Reliance Communications closed at Rs 219.20, up 3.49 per cent on the BSE.