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UPDATE 4-Etisalat weighs Reliance deal; AT&T denies talks

* Etisalat studying India options, including Reliance Comm

* AT&T denies in talks with Reliance Comm

* Reliance Comm shares end 4.6 pct higher in weak market

* 26 pct stake valued at $2 bln at current prices (Adds AT&T comments, updates headline)

By Devidutta Tripathy and Suleiman Al-Khalidi

NEW DELHI/AMMAN, June 7 (Reuters) - Abu Dhabi's Etisalat ETEL.AD is looking at a deal with Reliance Communications RLCM.BO as it mulls its options in India, while AT&T Inc T.N denied media reports it was in talks with India's No. 2 mobile player.

A frenzy of deal-making speculation has surrounded the Indian company, the only major local cellular carrier without a foreign strategic investor in the world’s fastest-growing mobile market.

Valued at about $7.7 billion, Reliance Communications said on Sunday it was open to selling a stake of up to 26 percent to strategic or private equity investors. [ID:nSGE655019]

Talk about a stake sale started soon after controlling shareholder Anil Ambani and his long-estranged brother Mukesh ended an agreement that forbade them from competing on each other’s turf, freeing Anil to bring new investors into his debt-laden company.

Reliance Comm’s board has approved selling up to 26 percent at a premium, and at current market prices, the stake is worth about $2 billion.

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For StarMine data: r.reuters.com/war58k

For related Breakingviews column: [ID:nLDE6511OX]

For related analysis: [ID:nSGE64N1IR]

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The Indian mobile carrier did not give a time frame or any details about a possible deal, but media reports and a person familiar with the matter had previously cited Abu Dhabi's Etisalat and South Africa's MTN MTNJ.J as potential partners. [ID:nSGE655019]

“We did not make any offers to Reliance. We’re studying several opportunities in India, among them is Reliance,” Etisalat Chairman Mohammad Omran told Reuters in Amman on Monday. [ID:nWEA5050]

“India is a large market and we are closest to India. But we’re studying several acquisitions,” he said, citing new licenses that will become available in Syria and Iraq.

“We don’t have a liquidity problem,” he said.

Etisalat, which already has a start-up joint venture in India, said last week it was looking to buy a stake in an Indian operator and was in talks with several firms.

AT&T, which has previously shown interest in India, denied reports in the Wall Street Journal and the New York Times that the companies are talking about a transaction.

“In response to news reports, AT&T today said it is not in discussions with Indian wireless company Reliance Communications,” AT&T said in a statement.

One person familiar with the matter had previously told Reuters that contact between AT&T and Reliance was “very early feelers” as opposed to formal discussions.

Finding a buyer willing to pay a high premium for a minority stake in Reliance Comm may be a challenge given the ongoing price war in India’s 15-player cellphone market and the heavy capital expense needed to build out third-generation mobile networks.

Reliance Comm shares rose 14 percent last week on talk of a deal but still ended Friday 80 percent below their early 2008 peak.

BRUISING MARKET

In a sign of just how bruising India is, UK giant Vodafone VOD.L said last month it would take a charge of 2.3 billion pounds ($3.3 billion) on its India business and is also fighting a $2.56 billion tax bill in the country.

Market leader Bharti Airtel BRTI.BO, searching for more attractive opportunities elsewhere, is paying $9.7 billion to buy Zain ZAIN.KW of Kuwait's Africa operations. Bharti is about one-third owned by Singapore Telecommunications STEL.SI.

“The event would indeed be positive for RCOM, if it happens, however, we would view it as negative for the sector,” Kotak Securities analysts wrote in a note on Monday.

“This event would mean a further infusion of risk capital in the industry, without leading to any consolidation,” the analysts said.

Reliance Comm had net debt of 199 billion rupees ($4.2 billion) at the end of March and last month paid 85.85 billion rupees for a 3G licences in an auction that was far more costly than had been forecast. A stake sale would help it cut debt.

A Reliance Comm official could not immediately be reached for comment on Monday. But the company has said its board has approved pursuing other “appropriate strategic consolidation opportunities.”

Reliance Comm shares rose as much as 6.5 percent on Monday before closing 4.6 percent higher, outperforming a broader market .BSESN that lost nearly 2 percent. More than 11 million shares traded, nearly six times its 30-day average of 1.97 million.

The Times of India newspaper last week said Etisalat, 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), a healthy premium.

Separately, India’s Economic Times newspaper had reported that Reliance Comm was considering a merger with MTN, with which the Indian firm had held tie-up talks in 2008. (US$= 0.6930 pounds = 47.215 rupees) ($1=47.4 rupees) (Additional reporting by Sinead Carew in New York, writing by Tony Munroe; Editing by Valerie Lee, Anshuman Daga and Tim Dobbyn)

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