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Etisalat eyes stake in Reliance

UAE incumbent interested in buying an initial 25% stake in India's second biggest telco

Etisalat is in discussions to buy a stake in Reliance Communications, according to banking sources quoted by The Times of India.
Etisalat is in discussions to buy a stake in Reliance Communications, according to banking sources quoted by The Times of India.

UAE operator Etisalat is interested in buying a 25% stake in India's Reliance Communications, according to unnamed senior banking sources, The Times of India has reported.

The sources said that the deal, which is believed to be at an advanced stage, could be worth some $3.8 billion.

Etisalat is believed to be interested in buying an additional 20% stake in Reliance, which would make it the second biggest shareholder after Anil Ambani, Reliance's chairman, the report added.

If the deal takes place, it would give Etisalat a 45% stake in Reliance, leaving Ambani with the remaining 55% of the company.

The deal would also force Etisalat to sell its stake in its Indian operation, Etisalat DB, which has a licence to operate 2G services in 15 circles of India. Under Indian telecoms regulations, a single company is prevented from holding stakes of 10% or more in two operators competing in the same area.

But a large stake in Reliance would most likely offer Etisalat a more lucrative presence in India than Etisalat DB, which is yet to start operations in its 15 licenced telecom service areas and which also pulled out of last month's 3G auction, leaving it without the capability to offer mobile broadband services.

Reliance's renewed interest in international markets is partly due to a thawing in the relationship between Anil Ambani and his older brother Mukesh, who recently ended an agreement not to compete with each others businesses. This change has allowed Anil Ambani to look for outside parties to invest in Reliance.

Outside investment could also help Reliance absorb the $1.83 billion cost of the 3G spectrum it acquired last month in India's 3G auction, according to industry analysts.

A deal with Etisalat could also give Reliance access to the UAE operator's African assets, which include operations in Central African Republic, Gabon, the Ivory Coast, Egypt, Niger, Nigeria, Sudan and Tanzania.

The rumoured deal between Reliance and Etisalat follows closely from speculation that Reliance and South African telco MTN were interested in a tie up. MTN had previously been speaking to Egyptian operator Orascom about acquiring some of its assets, although the talks faltered when it emerged that the Algerian government would block the sale of Orascom's Algerian unit, Djezzy, to MTN.