Ambani truce opens int’l lines for RComm again

The patch-up by Ambani brothers by scrapping their non-compete agreement has paved the way for Anil group’s flagship firm, Reliance Communications Ltd (RComm), to explore a combination of foreign tie-ups for expansion.

While company officials were not available for comments, analysts maintain that with the right of first refusal (RoFR) also going away with the non-compete agreement, RComm and South Africa’s MTN could once again look at a merger possibility, making the Anil Ambani firm part of the South African telco, something rival Bharti had refused to do in 2008. “The canvas is now wide open for RComm since it was this right of first refusal clause which restrained the company from getting into a potential transaction,” said Prashant Singhal of E&Y. However, a deal with MTN could entail huge cash outflows for RComm this time since valuations of telecom companies in India have taken a hit in the last two years, he pointed out.

Romal Shetty of KPMG, however, ruled out RComm getting into any immediate talks. With valuations plummeting, acquisition or merger would not be a good proposition for the company, he felt, adding RComm had bagged spectrum in 13 circles for Rs 8,600 crore in the recently concluded 3G auctions.

RComm, which is the country’s second largest mobile operator with a total subscriber base of 102 million, needs to scale up because rival Bharti Airtel has widened the gap with the recent acquisition of the African operations of Zain Telecom.

An RComm-MTN combine could today throw up a total subscriber base of 225 million, thus giving a major leg-up to Anil Ambani’s telecom dreams. Further, MTN, which is present across 21 countries, is quite keen on an emerging market like India, the fastest growing telecom market in the world. Further, with Bharti competing directly on its home turf through the Zain buy, the pressure on MTN would also be to scale up.

The Bharti-Zain combine has a total subscriber base of 179 million with operations across 20 countries and ranks as the world’s fifth largest mobile firm by user base. An RComm-MTN combine, if it happens, would easily beat it.

In 2008, after the Bharti-MTN merger talks collapsed the first time as the latter wanted the Indian entity to become its subsidiary at the last moment, RComm had entered into exclusive negotiations with the South African telco. RComm had agreed to become part of MTN, with Anil Ambani becoming the single largest shareholder in the combined entity.

However, the talks could not proceed when the Reliance Industries Ltd (RIL) waved the RoFR clause, which mandated that in case the promoters’ equity in group companies of either brother fell below majority, the first right of refusal lay with the other brother. Had the deal fructified then, the joint entity would have emerged as the sixth largest mobile operator in the world with a combined subscriber base of over 116 million.