Global Telecom cos and strategic investors dial RCOM for 26% stake

11 Dec 2008

Strategic investors yet to be identified, including telecom groups from the US and Europe, are believed to be 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 number of subscribers. According to sources, 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.

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 that the R-COM could be valued between $18 billion and $20 billion. At a $20-billion valuation, even a 5% dilution will fetch RCOM around $1billion.

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

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. crackcrack
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