Reliance Comm shares rise after MTN deal talks end

NEW DELHI (Reuters) - Shares in India's Reliance Communications (RLCM.BO) rose nearly 5 percent on Monday after tie-up talks with South Africa's MTN Group (MTNJ.J) were called off, as investors see it still pressing on with expansion plans.

Analysts said Reliance Communications, India's second-largest mobile operator, would continue looking for overseas acquisitions after the talks with MTN, aimed at creating a global top-10 telecoms group, were called off late on Friday.

But the firm, controlled by billionaire Anil Ambani, would have to deal with a right of first refusal on its shares claimed by Reliance Industries (RELI.BO), the conglomerate controlled by Ambani's estranged brother Mukesh, which had proved an obstacle for a deal with MTN.

"Ultimately they have to cross the boundaries of India to maintain the growth momentum. They will keep looking at partnerships, share swaps etc," said Gajendra Nagpal, chief executive at Unicon Financial.

"But they will have to sort it out with Reliance Industries first. They have to renegotiate, otherwise it will come up everywhere."

Reliance Communications shares were up 3.6 percent at 451.40 rupees at 0745 GMT, having risen as much as 4.9 percent. In contrast, MTN shares fell more than 6 percent. See ID:nWEA2481

The shares were expected to be choppy ahead of a vote in the Indian parliament on Tuesday to decide the government's future, but analysts said there was relief a legal clash had been avoided.

The Indian firm's stock had shed 24 percent since the talks with MTN were announced in late May, with much of the fall coming after Reliance Industries claimed a right of first refusal on the telecom's shares.

The claim, made after media reports the firms were considering a reverse takeover where Anil Ambani would swap his stake in Reliance Communications to become the largest single shareholder in MTN, made investors worried about a prolonged legal wrangle between the feuding brothers.

The claim was based on a deal signed in January 2006 when their late father's business was being split between Mukesh and Anil. The deal was signed when the companies now run by Anil were still controlled by Reliance Industries, and Anil has said the claim was legally and factually untenable.

A deal with MTN would have created an emerging markets telecoms giant with operations in about two dozen countries and around 120 million subscribers.

In the end, the two companies said they could not reach a deal due to certain legal and regulatory issues.

"A 'no-deal' with MTN removes a near-term overhang on the stock," Goldman Sachs analysts said in a client note.

Reliance Communications has nearly 50 million subscribers in India, the world's fastest-growing mobile market and the largest after China.

The carrier, whose customers are mainly on a CDMA network, is spending $6 billion in the year to March 2009, mostly to expand its GSM services nationally and better compete with leading GSM players such as Bharti Airtel (BRTI.BO) and Vodafone Essar.

Goldman reiterated its "buy" rating on the stock with a target of 678 rupees, citing the GSM rollout and tower business gains as catalysts.

Sources said in May the company had received the regulator's nod for a proposed IPO of its tower subsidiary, which some expected to raise $1.4 billion.

But falling stock markets have cast a shadow over share sales and many firms have been forced to defer public offerings.

Reliance Communications, which has been snapping up smaller overseas assets, was expected to keep looking abroad.

"I don't know whether there are many more such global opportunities, but I would expect them to look at any suitable opportunity," said Sandeep Neema, fund manager at JM Financial Mutual Fund.

(Editing by Charlotte Cooper and John Mair)