Ambani truce has brought a flurry of activity

After a family agreement last month cleared the way for Anil Ambani, the Indian billionaire industrialist, to sell a stake in his flagship Reliance Communications (RCom), no one was surprised when he immediately got the process under way.

This month, name after name, including Etisalat, based in Dubai, MTN of South Africa and AT&T of the US, have emerged as possible suitors for India’s second biggest mobile group by subscribers.

Kunal Bajaj, director for India at Analysis Mason, the consultancy,said: “RCom has the most debt out of India’s mobile operators.

“It needs to raise capital to fund the purchase of 3G spectrum and it’s the last one left without a global partner.”

Mr Ambani has long wanted to sell part of RCom, which has more than 100m subscribers, to raise capital for the company and possibly some cash for his other interests. These include operations in the financial, electricity generation and media sectors. The pressure to raise money has only increased amid the intense competition in the Indian market and following auctions for third generation spectrum last month.

But when Mr Ambani proposed a deal with MTN two years ago, Mukesh Ambani, his elder brother, invoked a right of first refusal over RCom that he gained when the brothers split their late father’s business empire between them five years ago.

Bharti Airtel said on Tuesday it had completed its $10.7bn acquisition of the African assets of Kuwait’s Zain, James Lamont reports from in New Delhi. But Econet Wireless, a South African mobile telephone operator, insisted a dispute over the ownership of the second-largest mobile telecoms operator in Nigeria remained unresolved.

In Nigeria – Africa’s most populous nation and Zain’s single biggest source of revenues – minorities in the local subsidiary had claimed that the Kuwaiti majority owners had ignored their right of first refusal over the deal.

Econet Wireless, a 5 per cent shareholder in Zain Nigeria, said the issue was before a tribunal constituted under the United Nations Commission on International Trade Law and before the Lagos State High Court.

The company said: “Econet Wireless can confirm that the dispute surrounding the ownership of the assets in Nigeria which form part of the transaction is not resolved and that Econet is not party to any agreement between Bharti Airtel and Zain”.

Earlier, Sunil Bharti Mittal, chairman of Bharti Airtel, India’s largest mobile network, said a long-standing dispute with Broad Communications Group, Bharti’s main partner in Nigeria, had been settled without any financial payment.

In May, the brothers agreed to a peace deal that removed this right of first refusal. With this right gone, the first name to emerge as a possible suitor was MTN – again.

Phutuma Nhleko, MTN’s chief executive, has been keen to expand the group’s leading position in emerging markets, and in April the company confirmed it was in talks to buy the African assets of Orascom Telecom, the Cairo-based mobile operator.

But the talks have run into difficulties because the government of Algeria has objected to Orascom’s plans to sell its Algerian mobile business – the most profitable of its African assets – to MTN.

This has prompted speculation that MTN might again look at Reliance. Together, the pair would represent possibly the largest group with a focus purely on emerging markets. But MTN has publicly denied it is in talks with the Indian group.

Another group that has also felt compelled to deny any talks with RCom over the past week is AT&T.

The US telecoms group has been preoccupied with consolidation in its home market over the past five years, but Randall Stephenson, the company’s chief executive, is interested in overseas expansion.

Moreover, AT&T has a good working knowledge of India.

In 2005, AT&T sold a minority stake in Idea Cellular, a mid-sized Indian mobile operator, and it established an Indian joint venture with Mahindra Telecommunications in 2006, but this is focused on serving companies rather than consumers.

Perhaps the most likely combination could be with Etisalat. Talks between the pair began about two months ago, said one person familiar with the situation.

A deal between the two companies, under which Etisalat would take a 26 per cent stake in Reliance, could put an enterprise value of $16bn on India’s third-largest mobile operator by revenue.

This person added that Etisalat had also been considering taking a stake in Idea Cellular or Aircel, another mid-sized Indian mobile operator.

A deal with Etisalat would provide RCom with a chance to reduce its debt, which is 3.7 times earnings before interest, taxation, depreciation and amortisation, versus 0.7 times for Bharti Airtel, the industry leader, according to Nomura analysts.

However, Rajiv Sharma, a telecoms analyst with HSBC in Mumbai, said the $4bn price for a 26 per cent stake implied a 100 per cent premium to RCom’s current share price.

He said: “Whilst Etisalat has the balance sheet to afford the stake ... the reported price looks too high ... especially as Etisalat will be looking at a range of options”.