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Reliance Comm opens exclusive talks with MTN

(The Hindu Business Line 27th May 2008)

Reliance Communications which has initiated talks with South Africa-based MTN is believed to be open to the idea of establishing a special purpose vehicle which would act as a holding company for all joint investments in emerging telecom markets.
The second largest domestic telecom operator swiftly moved in where Bharti Airtel left off, announcing a 45-day commitment with MTN for what it called “a potential combination of their businesses.”
During this period, neither company will talk to any other suitor.
Sources in RComm said the company was open to accepting a holding structure, including the possibility of MTN picking up a sizeable stake. If RComm does not get the stake in MTN that it desires, it is also open to forging an alliance with MTN and leveraging each other’s strengths, sources said. But what this would be they would not elaborate.
Both RComm and Bharti are looking to expand their operations overseas, especially in the emerging markets. One of the stumbling blocks in the Bharti-MTN deal was that the FDI holding in the former was close to the cap for the sector, if one took into account the indirect foreign holdings . Parting with more equity in favour of a foreign company would constitute a problem for Bharti Airtel.
For RComm however, the FDI is around 10 per cent and the promoter holding 66 per cent.
It is possible for RComm to acquire the required stake in MTN, through a combination of raising funds as well as swapping of shares.
The MTN acquisition is considered a negative by some analysts that Business Line spoke to.
“Even though MTN has presence in about 22 countries, barring Tanzania and South Africa, other African countries do not have a well established regulatory structure and hence RComm could run into problems in these geographies,” a Mumbai-based telecom analyst said.
Analysts said it would be unlikely that RComm would agree to be a subsidiary of MTN. “If that happens, management control will become an issue,” said one of them.
“RComm is already at a very crucial stage of launching GSM operations in India; acquiring a stake in MTN, which is a GSM services provider, is like talking too much too early," the analyst said.
The RComm stock slid 5.08 per cent on Monday, closing at Rs 543.2. Bharti Airtel was up 3.15 per cent, closing at Rs 863.15.

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