Reliance Communications Gains After Stake Sale Agreed

June 7 (Bloomberg) -- Reliance Communications Ltd., India’s second-largest wireless carrier, rose in Mumbai trading after the company’s board approved the sale of a 26 percent stake to help pay debt and upgrade networks.

The board gave preliminary approval for the sale of the stake, valued at 90.5 billion rupees ($1.9 billion) at the last closing price, to a strategic or private-equity investor, the Mumbai-based company said yesterday. Reliance shares rose as much as 6.2 percent to 179 rupees, its highest intraday price since April 12.

Reliance, controlled by Indian billionaire Anil Ambani, didn’t identify any suitors. The Wall Street Journal reported AT&T Inc. is in early talks about investing in the company. Emirates Telecommunication Corp. may buy a stake valued at $4 billion, the Financial Times said last week.

Selling a stake would help the Indian company purchase network equipment as it prepares to offer third-generation wireless services in the world’s second-largest mobile-phone market. Reliance paid 85.9 billion rupees to the government for 3G licenses last month.

“With the kind of capital expenditure that the company would need going forward it may require an infusion of funds,” said Rahul Jain, a Mumbai-based analyst with Angel Broking Ltd., who has a “neutral” recommendation on the stock.

Reliance shares traded at 171 rupees at 10:47 a.m.

Overseas Expansion

AT&T, which is looking to expand outside of the U.S., has been holding informal discussions with Reliance for the past few weeks, according to the Journal report. Mark Siegel, a spokesman for AT&T, declined to comment on the report.

Reliance Communications Spokesman Anuj Bakshi declined to comment on specific companies that had expressed interest.

Indian phone operators are trying to revive earnings growth by offering data services in a market where voice calls cost as little as one U.S. cent per minute.

Revenue in the nation’s mobile-phone services industry is poised to fall 22 percent for the year after declining 25 percent in 2009, according to estimates from Bank of America Corp.’s Merrill Lynch unit.

Vodafone Group Plc on May 18 booked a $3.3 billion charge for its Indian unit, citing “intense” price competition.

“The competition in the Indian market is getting intense and is showing no signs of stabilizing at all,” said Jain.

Falling Shares

At the close of trading in Mumbai on June 4, Reliance was worth $7.4 billion. The stock dropped 49 percent in the 12 months to June 4 compared with a 15 percent gain for the Bombay Stock Exchange’s benchmark Sensitive Index. Larger rival Bharti Airtel Ltd. shed 31 percent during the same period.

Reliance said on June 2 it had received “various proposals” from overseas companies, after the Times of India newspaper reported Emirates Telecommunications, known as Etisalat, was in advanced talks to buy a 25 percent stake.

Etisalat spokesman Ahmed Bin Ali said on June 2 that Indian operators were among companies being looked at for possible investment, without specifying Reliance.

The Economic Times reported on June 1 that the Indian company may restart merger talks with South Africa’s MTN Group Ltd., after negotiations collapsed in July 2008.

Nozipho January-Bardill, a spokeswoman for MTN, said “there are definitely not any talks with Reliance.”

Reliance will sell shares at an “appropriate premium to the prevailing market price” and “examine and pursue other appropriate strategic combination or consolidation opportunities,” the company said in its statement yesterday.