Face-off may hit MTN deal

By Rina Chandran

Mumbai

July 4: Reliance Commun-ications Ltd has only days to reach an agreement for a tie-up with South Africa’s MTN Group, but falling shares and a face-off between the Ambani brothers could scuttle a deal.

Reliance Communicat-ions (RCom), controlled by Anil Ambani, is currently in exclusive talks with MTN to create a global 10 telecom company but this agreement ends on July 8.

However, in mid-June Reliance Industries, run by elder brother Mukesh Ambani, claimed first right of refusal on India’s No. 2 mobile operator, based on a deal signed when their late father’s business was being split between the brothers.

The bitter rivalry between India’s two richest men has shown no sign of letting up.

MTN, sub-Saharan Afri-ca’s top mobile operator, has about 68 million subscribers in nearly two dozen countries. RCom, the second largest mobile operator in India, has 48 million subscribers.

"The tiff has almost certainly scuppered the deal," said Emeka Obiodu, a senior mobile technologies specialist at UK-based research firm Global Insight.

"As long as there is any uncertainty about the legal validity of a deal, it is un-likely MTN will go through with it. And there is no point in extending talks if the situation will not change."

Shares in RCom have shed a third of their value since the company said in May the firms were considering a potential combination. The company’s shares fell 6.9 per cent on Thursday.

In June, RCom said the claim by RIL would not delay its talks with MTN.

But traders in Mumbai earlier this week said concerns that Mukesh may throw a spanner into the works had helped push down the share price.

The lower valuation of RCom, which now has a market worth of about $18 billion, down from nearly $27 billion when it first said it was in talks, could spoil the share swap that the two firms were reported to be discussing.

"Ambani may also need more cash, now that valuation has fallen, and that will be difficult in this market," an analyst said, adding the deal had a "50-55 per cent chance" of going through.

RCom may also consider a revenue-sharing agreement, said Kevin Trindade, analyst at KR Choksey Securities. "They will have to restructure the deal. The legal challenge from RIL can open a whole can of worms and a legal battle can drag the sha-res lower." — Reuters