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Reliance Lines Up Stake Sale

With speculation rife that it's set to announce a major new investor, the board of Reliance Communications Ltd. has approved the sale of "an up to 26 percent equity stake" to "strategic" or "private equity" investors, a move that could raise up to US$4 billion for the operator.

The board announced it will also "examine and pursue other appropriate strategic combination/consolidation opportunities."

News of the board's decision comes only days after Middle East giant Etisalat was identified as a potential investor, while Reliance Communications, India's second-biggest mobile operator with 105 million customers, has also reportedly opened merger negotiations with African carrier MTN Group Ltd. . (See India: M&A Hotbed.)

Etisalat might face a rival bid, though. The Wall Street Journal has reported that AT&T Inc. (NYSE: T) might also be looking at a stake in the Indian operator.

AT&T's interest in Reliance would likely be twofold: having a presence in one of the largest and fastest-growing telecom markets in the world; and having a stake in Reliance's international subsidiary, Global Cloud Xchange , which includes global subsea giant FLAG Telecom Ltd. , Ethernet services player Yipes Enterprise Services Inc. and managed VPN service provider Vanco plc . (See Reliance Unit Targets 'Complacent' Giants and Reliance Integrates Global Services.)

The news sent Reliance Communications' share price up by 2.4 percent to 172.2 Indian rupees on the Bombay Stock Exchange.

Reliance could do with a cash injection. It spent INR85.9 billion ($1.82 billion) on 3G spectrum, and now faces the expense of rolling out a 3G network. (See India's 3G Auction Ends, Raises $14.6B and India's 3G Players Face Share Issue.)

The operator is also involved in the ongoing BWA (broadband wireless access) spectrum auction, which is proving to be as competitive as the 3G sale. Currently, the price of a pan-India BWA license, after 11 days of bidding, is INR98.4 billion ($2.08 billion), with the price of a license for Mumbai alone valued at INR16.33 billion ($346 million). (See Analysts: Bidding for BWA to Be as Fierce as 3G and Bids Flood In for India's Spectrum Auctions.)

In its most recent financial year (to the end of March 2010), Reliance Communications' annual revenues fell 3.5 percent to INR221.3 billion ($4.7 billion), and net income fell 23 percent to INR46.55 billion ($988 million). (See Reliance Comms Reports Full Year.)

— Ray Le Maistre, International Managing Editor, Light Reading

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