Sunday, June 6, 2010
, Posted by Unknown at 11:38 PM
Last week, ET reported the company was toying with two possibilities: one, a 26% stake sale to a strategic investor such as Dubai-based Etisalat and the other a merger with South Africa’s MTN. In its statement, Reliance Communications did not name any potential investor. “This is an in-principle approval,” a company spokesman said.
Last week, MTN denied it was in talks with RCOM. But while no formal talks have been held, ET has learnt that the two sides have informally explored the possibility of resurrecting merger talks which were abandoned in 2008 when Reliance Industries asserted it had the right of first refusal should Anil Ambani, RCOM’s promoter, seek to sell his shares. Last month, the right of first refusal was scrapped when Anil and his brother Mukesh, the RIL chairman, announced they had resolved their differences.
“The company doesn’t have a choice,” said a regional telecoms research head at an international brokerage. “It needs the cash to fund spectrum and growth. It is running out of debt options.” Besides Etisalat, one more strategic investor is interested in RCOM, said a person familiar with the company’s plan to induct a strategic partner.
The company had net debt of Rs 19,889 crore at March-end with annual earnings before interest, tax depreciation and amortisation (EBITDA) of Rs 7,820 crore. Add to that the cost of 3G and WiMax spectrum and its debt to EBITDA multiple, used as a measure of a company’s future access to cash, will be above five times, much higher than its competitors.
Reliance Communications said the stake would be sold at “an appropriate premium to the prevailing market price, and also to examine M&A opportunities.” An analyst with a domestic brokerage said the company would at most fetch Rs 215 per share at fair value, not including any premium a buyer may offer for brand presence and an easy entry into the world’s fastest growing telecom market by number of subscribers.
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