Market fears RCom shivers

By Olga Tellis

Mumbai, July 20: All eyes are expected to be on the Reliance Communications (RCom) stock on Monday following the deal between RCom and the South African telecom giant MTN being called off late Friday evening, after the markets closed.

Analysts felt that logically the stock should move up as it has lost nearly 30 per cent since the talks between the two telecom giants started at the end of May. Mr Alok Agarwal, head, research, K.R.Choksey Shares and Securities Ltd. said, "logically once the talks are called off the stock should start to go up since it lost nearly 30 per cent since the negotiations started. But it is difficult to say what the quantum would be, as the talks were forced to be called off. That is negative as the image of the company has been tarnished," he said.

On Saturday evening, Reliance Communications itself issued a statement saying Mukesh Ambani had caused "significant harm to AAA Communications that is the major stakeholder in Reliance Communications. Anil has called Mukesh Ambani’s scuttling of the MTN and RCom deal with threats as "mala fide interference."

He said that he "reserved the right to claim direct and consequential damages from Reliance Industries Limited."

AAA Communications is a company held solely by Anil Ambani, chairman of the Anil Dhirubhai Ambani group. This company, which is unlisted, has a major shareholding of 63.38 per cent in RCom. Anil was swapping these shares with MTN and Mukesh laid claim for the first right of refusal on these shares if Anil was swapping or selling them. Anil reiterated on Saturday that AAA Com’s shareholding in RCom, is not covered by any alleged right of first refusal agreement to RIL. He said that "AAA Com is free to and shall deal with RCom shares as it deems fit."

Analysts see the deal as they saw the Hindalco-Novelis deal and Tata Motors-Jaguar Land Rover deals, said Ambareesh Baliga, vice-president. Karvy Stock Broking.

"In the short to medium term, the outlook was that it would not have shareholder value. When the ne-gotiations commenced with MTN, the RCom stock fell nearly 30 per cent of its value so now that deal has been called off the knee jerk reactions should be positive," said Mr Baliga.

However he said much would also depend on how the markets open on Monday. It should be a decent opening considering that the market on Friday totally ignored the political instability.

The thought of what would happen if the government fell, did not figure on the market’s radar.

This week the market will be affected solely by what happens on July 22.

"If the UPA government gets through, the market will move up, but there will be selling at every higher level. But the downside could be over. If the government does not get through there will be one more bout of selling as there will be a period of uncertainty until the elections are called," said Mr Baliga.