Rinfo Seen Lining Up $1-bn Private Placement

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Cellular major Reliance Infocomm, part of the Anil Dhirubhai Ambani Enterprises (ADAE) Group, is believed to be contemplating a $1-bn pre-IPO private placement, according to banking and industry sources.

The ADAE Group is looking to sell around 10% of Infocomm’s equity, which would value the company at around $10 bn, or just under Rs 44,000 crore, if the company does manage to obtain such a valuation in the market.

Private equity majors active in India such as Newbridge and Blackstone are believed to have been approached by the ADAE Group, sources said. When contacted by ET, a senior ADAE Group official strongly denied that any such private placement was in the offing. “Nothing of the kind is being planned,” the official said.

However, officials at a large private equity fund confirmed that preliminary discussions had been held with the ADAE Group. Sources familiar with the situation said the ADAE Group has so far informally sounded out some potential investors.

A formal mandate may be issued later depending on the response, sources said.

Sources said private equity investors may want some say in the functioning of Reliance Infocomm for such a major investment. That may be a sticking point as the ADAE Group may not part with much of management control.

Inducting a major investor would help increase the valuation of Reliance Infocomm, which is widely expected to go in for a public issue some time next year.

Reliance Infocomm had a valuation of around Rs 22,500 crore, going by the Rs 32 per share at which RIL converted its preference shares in Reliance Infocomm, as part of the settlement between Reliance Industries chairman Mukesh Ambani and his brother, Anil, chairman of the newly-formed ADAE Group.

Bharti Tele-Ventures, India’s most valuable telecom company, had a market capitalisation of Rs 62,203 crore at Wednesday’s closing prices.

Reliance Infocomm posted a net profit of Rs 51 crore on a turnover of Rs 5,387 crore in ‘04-05. The previous year, ‘03-04, it had a loss of Rs 170 crore on a turnover of Rs 2,707 crore.

Reliance Infocomm had held discussions with potential private equity investors late last year, when it was controlled by Mukesh Ambani. Those discussions were put on hold when the dispute between the Ambani brothers became public. They had been revived in the past few weeks, sources said.

However, some issues remain unclear. RIL’s equity stake in Reliance Infocomm has been transferred, as part of the settlement, to a holding company called Reliance Communication Venture (RCVL). Besides Reliance Infocomm, RCVL is also the holding company for an entity called Reliance Communications Infrastructure (RCIL), which owns some telecom infrastructure (such as, the group’s fibre optic cable network), the GSM service provider Reliance Telecom and Flag Telecom, a US-based undersea cable company which had been acquired by Reliance Infocomm in ‘04.

The point of confusion is this: which company will go public, Reliance Infocomm or holding company RCVL? ADAE Group chairman Anil Ambani had said in August this year that RCVL is likely to be listed before March 31, ‘06, as part of the settlement process. Once this happens, Reliance Infocomm would itself be automatically listed, albeit through the holding company, early next year.

Again, any private placement prior to RCVL’s listing on the Indian bourses could thus be either at the level of the holding company (RCVL) or directly in Reliance Infocomm. Any subsequent public offering could also be through the holding company or directly by Infocomm. It is also possible that Reliance Infocomm, which accounts for the bulk of the revenues of the holding company, may eventually be merged into RCVL, industry sources said.

Sources said all these possibilities were being considered and no final decision had been taken. RCVL currently holds around 66% each in RCIL, Reliance Infocomm and Flag, while the rest is held by the ADAE Group (or, holding companies controlled by the Anil Ambani Group). Reliance Infocomm and Reliance Telecom together have around 15m subscribers.

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in some related news

Reliance Infocomm may offer 10per cent of its equity to private equity investors prior to its IPO next year. The company had a valuation of around Rs 22,500 crore, going by the Rs 32 per share at which RIL converted its preference shares in Reliance Infocomm, as part of the settlement between RIL chairman Mukesh Ambani and his brother, Anil, chairman of the ADAE Group. Bharti Tele-Ventures had a market capitalisation of Rs 62,203 crore at Wednesday’s closing prices.

Reliance Infocomm posted a net profit of Rs 51 crore on a turnover of Rs 5,387 crore in ’04-05. In ’03-04, it had a loss of Rs 170 crore on a turnover of Rs 2,707 crore. Infocomm had held discussions with potential private equity investors last year, when it was controlled by Mukesh Ambani. Those discussions were put on hold when the dispute between the Ambani brothers became public. They have been revived in the past few weeks, sources said. But some issues remain unclear. RIL’s equity stake in Infocomm has been transferred, as part of the settlement, to a holding company called Reliance Communication Venture (RCVL). Besides Reliance Infocomm, RCVL is also the holding company for an entity called Reliance Communications Infrastructure (RCIL), which owns some telecom infrastructure, the GSM service provider Reliance Telecom and Flag Telecom, a US-based undersea cable company which had been acquired by Infocomm in ’04.

The point of confusion is this: which company will go public, Reliance Infocomm or holding company RCVL? Anil Ambani had said in August ’05 that RCVL may be listed before March 31, ’06, as part of the settlement process. Once this happens, Reliance Infocomm will itself be automatically listed, albeit through the holding company, early next year. Again, any private placement prior to RCVL’s listing on the Indian bourses could thus be either at the level of the holding company (RCVL) or directly in Infocomm. Any subsequent public offering could also be through the holding company or directly by Infocomm. It is also possible that Infocomm, which accounts for the bulk of the revenues of the holding company, may eventually be merged into RCVL, industry sources said.

Sources said these possibilities were being considered and no final decision had been taken. RCVL holds around 66per cent each in RCIL, Infocomm and Flag, while the rest is held by the ADAE Group (or, holding companies controlled by the Anil Ambani group). Infocomm and Reliance Telecom together have 15m subscribers.