Reliance Comm shares set to gain as MTN talks end

NEW DELHI: Reliance Communications' shares are expected to rise on Monday after it called off tie-up talks with South Africa's MTN Group, avoiding a potential head-on legal clash between members of its founding Ambani family.

But analysts said stock market volatility ahead of a government confidence vote on Tuesday would dictate the movement of shares of India's second-largest mobile operator, controlled by the younger of the feuding billionaire Ambani brothers, Anil.

Reliance Communications and MTN, sub-Saharan Africa's biggest mobile phone group, ended their exclusive talks late on Friday, aimed at creating a global top-10 telecoms group, saying they could not reach a deal due to certain legal and regulatory issues.

"A deal is not happening, that will be bit of a relief for the shareholders," said Ambareesh Baliga, vice president at Karvy Stock Broking. "The stock should rise on Monday. But political issues will keep the market volatile."

The deal which would have created a company valued at $66 billion had been complicated by a claim of right of first refusal on Reliance Communication's shares by the older Ambani, Mukesh, who runs Reliance Industries and had started arbitration proceedings last week.

Reliance Communication's stock has fallen 24 percent since late May when the talks with MTN were first announced, with the bulk of the decline coming after the first refusal claim. The shares ended up 4 percent on Friday, before the exclusive talks were called off, with analysts split on whether a deal could be struck before the exclusivity lapsed on July 21. Stock markets are however expected to focus keenly on political uncertainty.

The government faces a vote of confidence on Tuesday after its communist allies withdrew support over a nuclear deal with the United States. A regional party has stepped in to replace the communists but analysts say the vote is still too close to call.

MTN'S SUITORS

A deal with MTN would have created an emerging markets telecoms giant with operations in about two dozen countries and around 120 million subscribers. The failure to reach a deal with Reliance came after India's leading mobile operator Bharti Airtel decided in late May to end talks with MTN.

Bharti said it had called off the talks after MTN proposed a new structure that would have seen the Indian group becoming a unit of the South African-based group.

In an email at the weekend, a Reliance Communications spokesman said Anil Ambani investment vehicle AAA Com, which holds 63.4 percent in Reliance Communications, reserved the right to claim "direct and consequential damages" from Reliance Industries.

This is not the first clash between the estranged Ambani siblings, who split their late father Dhirubhai Ambani's business empire in 2006 after a public feud.

Reliance Communications has nearly 50 million subscribers in India, the world's fastest-growing mobile market and the largest after China. "Now investors will look at the fundamentals. There should not be any further pressure on the stock," said Neeraj Dewan, director at fund manager Quantum Securities.