/ 30 May 2008

Reliance, MTN eye stock swap

South African cellular giant MTN could pick up to a 74% stake in India’s Reliance Communications in a share-swap deal being discussed between the companies, an official said on Friday.

“The stock swap is an option being considered at the moment,” a Reliance official said on condition of anonymity.

His comments came after the Economic Times reported that Indian minority shareholders could consider swapping their shares in Reliance, led by Anil Ambani, with MTN stock.

These shareholders would also have the option of selling their holding in the company by participating in an open offer from MTN, the official said.

In India, foreign companies can own up to 74% of local telecoms firms.

“The broad contours of the deal indicate that Mr Ambani will emerge as the largest shareholder of MTN and RCOM will be its subsidiary,” the Economic Times said.

Formal due diligence involving scrutiny of the corporate financial accounts was expected to begin within a couple of days, the newspaper said.

Both parties are trying to reach an agreement on management control. The Anil Dhirubhai Ambani group owns close to 66% of Reliance, while foreign investors own about 11%, the Reliance official said.

“Talks between chairman Anil Ambani and the MTN management could get more clarity towards the end of next week”, the official added.

If talks succeed, it could create a top-10 global telecoms player with a 116-million subscriber base across 23 countries, eclipsing most Western mobile phone businesses.

MTN Group and Reliance Communications announced last Monday they were discussing a “potential combination of their businesses” for up to 45 days to “achieve a unique and global platform for exponential growth”.

The statement came two days after rival Indian mobile operator Bharti Airtel hung up on discussions with MTN in a dispute over control.

Reliance Communications is the main company of the Anil Dhirubhai Ambani Group, which operates in the power, financial services, construction and telecommunications sectors.

Reliance Communications is valued at $28-billion, while MTN is valued at around $38-billion.

Reliance Communications shares were flat on Friday, trading down 0,15 rupees or 0,03% at 573,03 on the Mumbai stock exchange. – AFP