"Now, RCom & MTN may talk alliance"

R-ADAG Likely To Become Largest Shareholder In Combined Entity
Joji Philip Thomas, Javed Sayed & Rashmi Pratap
DELHI/MUMBAI


EXIT Bharti Airtel. Enter Reliance Communications. South Africa’s MTN and Anil Ambani-owned RCom may shortly announce that they are in exploratory talks for an alliance. According to banking sources, discussions between the two began late last week. MTN has offered RCom a structure similar to the one that Bharti turned down. It is believed that one of the proposals under consideration is for the RADAG group to transfer its 66% shareholding in RCom to MTN and in exchange become the largest shareholder in MTN with a 34% stake. This scenario will also involve making RCom a subsidiary of MTN. In the case of the now aborted Bharti-MTN deal, the Mittal family and SingTel had been offered a 51% stake in MTN for exchange of their shares to MTN as Bharti’s market capitalisation is larger than RCom’s.

When contacted, an RCom spokesperson declined comment. A source familiar with the group said reports about concrete discussions on any particular structure were premature. “Till late last week, MTN and Bharti were engaged in talks. Even though the R-ADAG group is known for its dealmaking capabilities, even by their standards this will be very fast,” he said.

Nevertheless, some industry sources say some kind of announcement is imminent and indeed it may happen as early as on Monday. “MTN would like to make an announcement soon as it would not like its stock price to fall following the collapse of its discussions with Bharti,” said a source. An MTN spokesperson on Saturday said his company would update shareholders as the market opens on Monday morning. The market, in this case, being the Johannesburg Stock Exchange. It remains to be seen whether the RCom management will agree to make their company a subsidiary of MTN in exchange for becoming the largest shareholder in the South African company.

While Bharti has denied that India’s FDI regulations were a stumbling block in their discussions with MTN, sources say the 74% FDI sectoral cap would have made it difficult for MTN to merge into Bharti. “Unlike Bharti, where direct and indirect foreign holding is around 74%, foreign shareholding in RCom is just over 10%. This gives RCom much more leeway to explore merger-related structures,” said a source.
Of course, RCom may not be the only suitor for MTN. It has been reported earlier that Russian telco Vimpel Communications, European major Deutsche Telecom and UAE’s Etisalaat may also be in the race.

RCom is India’s largest CDMA operator with a subscriber base of over 40 million. While its presence in the GSM space so far is confined to only eight circles with just a over seven million subscribers, it has ambitions of aggressively expanding in the GSM segment and has secured licence to roll out GSM operations on a pan-India basis. It had last year made a bid to buy Hutchison’s stake in Hutchison Essar but had lost out to Vodafone.

Analysts feel that synergies between RCom and MTN may not be as strong as it was between Bharti and MTN, given that RCom is still a relatively small player in the Indian GSM space.