$3.8 billion investment for a 25% stake expected to flow into Reliance Communications from Abu Dhabi's Etisalat

Etisalat announced that its stake move for an Indian mobile operator was possible within weeks. The Abu Dhabi owned company confirmed that it was seeking to purchase a stake with Reliance communications for a whooping $3.8 billion. Reports had initially surfaced that Etisalat was in talks with the cash-strapped Reliance Communications for a deal. With this investment plan, purchasing a stake in Reliance, India’s second largest mobile operator, is expected to bestow the company a significant existence in India, considered the world’s fastest growing mobile market, where Etisalat owns a stake in a start-up telecoms company.


On the other hand, the deal is expected to hand Reliance some badly needed finance as the company remains caught in a margin-destroying price war and is paying billions of dollars for next generation licenses. Reliance communications was one of the worst share performers in Mumbai’s 30-share index thus far in 2010, as it closed 11% higher on Wednesday, while Etisalat stock was down 0.5%.


The head of portfolio management services at Globe Capital in New Delhi, K.K Mittal said that, other than Reliance Communications, other players in the mobile industry will be seeking to sell some of their stock in order to raise funds to ease debt. According to him, Etisalat was looking for long term opportunities in the Indian mobile telecoms market despite the short term distress from competitive demands.


Etisalat investment plans will see it venture into a mobile telecoms market with about 600 million subscribers in which nine of the fifteen operators already have foreign partners; Reliance was the only major Indian firm with no direct foreign stake. Etisalat’s chairman, in an interview with Reuters, said that the company would make a decision on the Indian deal within the next few weeks.


At the same time, Reliance Communications confirmed that it had been getting proposals from many international telecoms firms seeking to acquire equity stake in it. Etisalat is the largest telecoms services provider in the gulf and was in talks to purchase a quarter of Reliance for $3.8 billion, but the market was currently valuing the company, Reliance, at about $7 billion.


Etisalat had previously purchased shares in another Indian telecoms company that it later renamed, Etisalat DB Telecom India, and began its services in March. Indian FDI rules limit a company to holding only 10% stake in two operators competing in the same telecom zone, a factor that might force Etisalat to rethink its holding in Etisalat DB by selling it or merging it with the Reliance communications stake acquisition.


June 6, 2010.