"DIFFERENT TAKES ON PARTNERSHIPS"

RCOM, MTN talk swap
Kausik Datta MUMBAI

ANIL Ambani’s Reliance Communication (RCOM) and South African telco MTN are locked in negotiations to decide the shareswap ratio at which Mr Ambani will transfer his stake in RCOM to MTN in return for a stake in the latter. Although both the parties are learnt to have agreed on the broad contours of the deal — which will result in RCOM promoter ADAG emerging as the single largest shareholder in MTN and the foreign company becoming the holding firm of the Indian telco — they are yet to decide the swap ratio.

It is learnt that Mr Ambani wants the ratio to be 0.66:1 (66 MTN shares for 100 RCOM shares) while the MTN management is asking for 0.51:1.

Sources said both the parties have started the due diligence exercise. A top team from RCOM is now stationed in MTN’s headquarters in Johannesburg. They are expected to be back in Mumbai on Tuesday. In addition to the shareswap ratio, the parties are also discussing the structure of the management of the entity post merger. It is learnt that they are in favour of keeping the existing management unchanged in most geographies. However, it is certain that Mr Ambani will join the MTN board as either chairman or co-chairman. Phuthuma Nhelko is expected to continue as MTN CEO. Cyril Ramaphosa, a famous personality in the world of South African business and politics, is MTN’s chairman.

Depending on the share-swap ratio and the response to the open offer, which MTN is expected to launch for RCOM shareholders, Mr Ambani may need to fork out some money. He is reportedly in talks with private equity firms including Carlyle, Blackstone and Apax Partners. Deutsche Bank is the financial advisor to RCOM for this deal. Its other advisors are believed to be Lazard, Lehman Brothers and JP Morgan. Lazard’s head of UK operations, Ken Costa, is leading the RCOM pack. Two weeks ago, MTN had signed an exclusive pact with RCOM, which means that the foreign company will not initiate merger talks with any other suitors in the next 45 days. MTN had entered into this pact after Bharti Airtel walked away from a similar arrangement describing it as a convoluted one.

66:100
SHARE-SWAP RATIO DEMANDED BY ANIL AMBANI*

51:100
SHARE-SWAP RATIO SOUGHT BY MTN MANAGEMENT**

28-34%
ANIL AMBANI’S LIKELY STAKE IN MERGED ENTITY

35%
THRESHOLD FOR TRIGGERING OPEN OFFER IN S AFRICA MTN likely to end up with 1/3-rd of RCOM’s equity

THEbroad contours of the deal, as reported by ET, suggest that ADAG may hold one-third stake in MTN, against its 66% stake in RCOM. However, the exact shareholding of these two companies would depend on this share-swap ratio and the response of the open offer.

MTN would end up getting anything between 63% and 74% of RCOM’s equity, including the stake garnered buy it through the open offer, and Mr Ambani would give away anything between 43% and 63% stake. Depending on the ratio, Mr Ambani would end up getting anything between a 28 to 34% stake in MTN.

If he ends up at the lower end of the band, he may up his stake by directly investing money in MTN. Ultimately, he would hold close to 35% in MTN.
Under South African norms, any acquisition beyond 35% requires an open offer which is not currently under consideration.

If the deal goes through, the combined entity will have a market capitalisation of $66 billion and operations in 23 countries

"Six NBFCs in race for Citicorp biz"

Bidders Include Shriram Transport, Ashok Leyland, Magma & Rel Cap

V Balasubramanian & George Smith Alexander CHENNAI/MUMBAI


A HOST of non-banking finance companies (NBFC) have shown interest in acquiring the commercial vehicle and construction equipment portfolio of Citicorp Finance. Citicorp Finance, a Citigroup NBFC, has put its portfolio of around $1.2 billion on the block. Sources said six institutions have been shortlisted in the second round of bidding. These include Shriram Transport Finance, Ashok Leyland, Magma Shrachi and Reliance Capital.

The bidders are doing a due diligence of the portfolio and Citicorp is expected to close the deal in the next one or two months. The NBFC is into assetbase financing. Citi is looking at exiting this portfolio as part of its similar global move. The sources point that Citi is looking at realising around $200 million from the sale of this portfolio. But, the bidders have estimated the deal to cost around Rs 450 to Rs 500 crore going by a capital adequacy ratio of 10% based on the size of the portfolio. However, Citi will not go through deal is if it does not get a good enough valuation as it is not in a hurry to sell off this business. Citi officials refused to comment on the issue. STFC’s MD R Sridhar offered no comments saying it is the company’s policy not to comment on speculation. But, Shriram group sources confirmed the company is very much in the race. STFC manages the truck financing portfolio of Indian and foreign banks and has a five-year long relationship with Citicorp Finance.

Magma Shrachi’s MD Sanjay Chamria confirmed its bidding but declined to go into details. Ashok Leyland has joined the fray as it has revived its interest to have its own finance arm to provide a cost-effective financing solutions to truck operators.

ALL looks at focused funding

The company has found a gap in meeting their needs after the Hinduja group decided to strengthen Indusind bank by merging with erstwhile NBFC, Ashok Leyland Finance, which was promoted by ALL. The bank has turned brand neutral in financing vehicles and its share of ALL vehicles has come down.

ALL CFO K Sridharan said, “We have a tieup with more than six banks and NBFCs for vehicle financing. We want to have focused funding arrangement. After the merger of ALF, we have been looking at having our own format for vehicle financing.” He added: “We have bid for the Citicorp business so that we can make a headstart by acquiring a good portfolio and a large number of customers of Tata Motors.” This is because it has found that these customers accounted for bulk of CV portfolio of Citicorp.

Also, 50% of the portfolio consisted of construction equipment financing. It may not be of immediate interest for ALL but its acquisition will bring in synergy once the company diversifies into the manufacturing of construction equipment in a year, Sridharan said. Bidders for this portfolio will have to take on their rolls 300 staff. This is the first time that any institution has asked buyers of the portfolio to absorb staff. Though some private sector banks had looked at this portfolio they backed out as they felt the returns were not good enough.

"STAGE SET FOR ANOTHER BIG M and A PLAY"

IDEA SET TO BUY OUT SPICE FROM MODIS

Adding more spice to an already-hot Indian telecom story, the merger will create a cellular behemoth with 28.5 million users

Rashmi Pratap MUMBAI


THE AVB Group-owned Idea Cellular is buying out the Modis from Spice Communications, taking complete control of the mobile company. The two will then be merged. Telekom Malaysia, which owns a shade less than 40% in Spice, will hold a stake in the combined entity.

ET was the first to report about this development on Wednesday.
Spice shares closed at Rs 51.95 on Friday, down 3% from their previous close. At this price, the market capitalisation of Spice is around $850 million. The value of the deal could not be ascertained. The Modis are likely to exit the company completely. Idea will make an open offer for the mandatory 20% after buying them out.

Telekom Malaysia was also interested in increasing its stake in the company. It wanted to buy out the Modis and later explore the option of merging with Idea.

The Idea board met in Mumbai on Friday. However, the details of the meeting could not be ascertained. Idea MD Sanjeev Aga and BK Modi of Spice refused to comment.

Spice, which operates in the Punjab and Karnataka circles, has been an acquisition target for quite sometime now for various reasons. One, it has remained restricted to the two circles even 11 years after rolling out operations. Two, it has spectrum in the 900 MHz band, which can accommodate a larger number of subscribers than the 1,800 MHz band used by other GSM operators. Spice has nearly 4.4 million subscribers in the two circles.

The merged entity will become the fifthlargest telco in terms of mobile subscribers (28.5 million plus) after Bharti, RCOM, Vodafone and BSNL and move ahead of Tata Teleservices, with 25 million subscribers. Idea has been allotted spectrum in the 11 circles where it does not operate and is readying plans to roll out services there. It is set to become a pan-India operator by 2009.

Spice Communications is 39.2% owned by Malaysia’s state-controlled Telekom Malaysia. The BK Modi family holds 40.8% through Modi Wellvest while the rest 20% is held by the public and financial institutions.

TM is an emerging leader in the Asian communications market with a presence in Indonesia, Singapore, Cambodia, Thailand, Bangladesh, Pakistan, India, Sri Lanka and Iran besides Malaysia. TM’s investment philosophy is to play an active role in its international operations, with an emphasis on management control, which it has been seeking in Spice for almost a year now. TM’s regional mobile customer base (across nine countries) was 39.8 million in 2007 end.

39.2%
TELEKOM MALAYSIA’S STAKE

$ 850m
MARKET CAP OF SPICE COMM

4.4m
SPICE’S SUBSCRIBER BASE

MAIN ATTRACTIONS

Strong foothold in Punjab and Karnataka circles Spectrum in 900 MHz band, which can accommodate more subscribers than the 1,800 MHz band used by other GSM operators