ABU DHABI/MUMBAI Abu Dhabi's Etisalat confirmed it is looking to buy a stake in an Indian mobile operator, after a report that it was in talks with cash-hungry Reliance Communications (RLCM.BO) for a $3.8 billion deal.
Buying a stake in India's second-biggest mobile operator would give Emirates Telecommunications Corp ETEL.AD or Etisalat, a vital presence in the world's fastest-growing mobile market, where it owns a stake in a start-up telecoms firm.
For Reliance Comm, controlled by billionaire Anil Ambani, this would bring in much-needed funds, especially as the company is caught in a margin-destroying price war and is paying billions of dollars for next-generation licenses.
Reliance Comm, one of the worst performing shares in Mumbai's 30-share index .BSESN so far this year, closed 11 percent higher on Wednesday, while Etisalat stock was down 0.5 percent.
K.K. Mital, head of portfolio management services at Globe Capital in New Delhi said: "Not only Reliance Communications but some other players will also be looking at selling some stake to raise funds to cut debt."
"Players like Etisalat are looking at long-term opportunities of the Indian telecoms market despite the short-term pain due to competitive pressure," he said.
India has more than 600 million subscribers and nine of the fifteen operators already have foreign partners. Reliance Comm is the only big telecom firm not to have a direct foreign stake.
Call rates have slumped to as low as 0.4 U.S. cents per minute in the world's largest market after China.
Etisalat's Chairman told Reuters his firm could decide within weeks about a deal in India. Reliance Comm said it has been receiving proposals from time to time from international telecom companies expressing interest in acquiring a strategic equity stake in it.
The Times of India newspaper said the Gulf region's biggest provider of telecoms services was in advanced talks to buy a quarter of Reliance Comm for 180 billion rupees ($3.8 billion). The market is currently valuing the Indian company at about $7 billion.
The stake sale could mean a change in strategy for ambitious Ambani, who made several smaller acquisitions to expand his firm overseas, and in 2008 set his sight for a tie up with South Africa's MTN (MTNJ.J) in an ultimately thwarted deal.
Last month, Anil Ambani ended an agreement not to compete in businesses with his long-estranged brother Mukesh, which also frees him to bring outside investors into his firm.
A person close to Reliance Comm, who declined to be identified, said the report was speculative.
ETISALAT TALKING TO SEVERAL INDIAN FIRMS
Etisalat's Mohammad Omran said: "We are talking to several Indian operators and are evaluating several Indian operators but have not reached a final decision."
Omran declined to comment specifically about the Reliance report and said Etisalat had not taken any final decisions. "It may take a few weeks or it may take a few months," he said.
If the deal is finalized, Etisalat will make an open offer to acquire an additional 20 percent stake in the Indian firm from the public, the newspaper said, citing market sources.
"We think the Indian market is ready for consolidation," Omran said.
Etisalat bought a stake in an Indian telecoms firm in 2008, which has been since renamed to Etisalat DB Telecom India. The company launched services in March.
Indian rules prohibit a company from holding a more than 10 percent stake in two operators competing in the same telecom zone, which might force Etisalat either to sell its holding in the startup Etisalat DB, or merge it with Reliance.
"Maybe you could see a two-step transaction, first an initial investment of less than 25 percent and then a merger of Etisalat DB Telecom with an incumbent," said Simon Siminion, telecoms analyst at Shuaa Capital in Dubai.
"If the speculation is true that Etisalat is partnering Reliance, we could see a small investment (about 10 percent) to comply with current regulations in India and a second stage merger of Etisalat DB Telecom with Reliance," he said.
India's top mobile operator, Bharti Airtel (BRTI.BO), has already sealed a $9 billion deal for the African assets of Kuwait's Zain (ZAIN.KW).
On Tuesday, another media report linked Reliance Comm reviving tie-up talks with MTN. The deal was thwarted two years ago after Mukesh asserted a right of first refusal on the Indian carrier's shares.
In a frenzied industry auction for 3G mobile licenses Reliance Communications forked out about $1.8 billion in May for its licenses, while Etisalat did not win any license.
(Additional reporting by Devidutta Tripathy; Writing by Tony Munroe and Thomas Atkins; Editing by Ranjit Gangadharan and Anshuman Daga)