R Com board approves sale of 26% stake

Reliance Communications Ltd. | Telecommunication - Service Provider | Telecom | BSE: 532712 | NSE: RCOM

07 Jun 2010 Evaluate

The board of directors of Reliance Communication has granted in-principle approval to the sale of 26-per cent stake in the company to strategic or private equity investors. However, the company has not named any buyer or given a timeframe for the proposed sale. RCom's decision follows reports that the UAE-based telecom company, Etisalat, is interested in buying a stake in the Anil Ambani-controlled company.

Reliance Communications' current market cap on the Bombay Stock Exchange is Rs 34,706 crore. Sale of a 26-per cent stake at this valuation would mean the buyer has to shell out Rs 9,024 crore. News reports had indicated that Etisalat is considering payment of Rs 18,000 crore for a 25-per cent stake, almost double the market value.

Etisalat, which already has a joint venture in India, said last week it was looking at acquiring a stake in an domestic telecom company and was as such in talks with many firms. Fresh equity infusion is good for RCom shareholders as there is huge debt in its balance sheet.

RCom is in need of huge cash for serving its debt and for its 3G foray. According to estimates, the company would require Rs 11,000-12,000 crore over the next few years to fund its expansion plans. The domestic price war on call rates has deprived the company of any room to manoeuvre.

RCom's move to shed equity follows the scrapping of the non-compete agreement between the Anil Dhirubhai Ambani Group and Reliance Industries controlled by Mr Mukesh Ambani. Under the earlier agreement, RIL had the first right of refusal in a stake sale in RCom and that hampered RCom from going ahead with its deal with the South Africa-based telecom major MTN.

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