Reliance under pressure to place shares

Reliance Infocomm, India’s mobile phone operator, is under mounting pressure to carry out a planned pre-IPO private placement of shares by the end of the year to aid its expansion.

While other mobile phone operators are moving quickly to expand their share of India’s market – one of the world’s fastest growing with 2.8m subscribers added monthly – Reliance is being accused of being too complacent.

Bharti Tele-Ventures, the country’s leading wireless operator in revenue terms, received a $1.5bn injection of capital from Vodafone late last month while government-owned BSNL plans to issue a tender for 60m new lines next month.

“Reliance should do this [private placement] as soon as possible,” said Kobita Desai, a senior telecoms analyst with Gartner Research. “They need the IPO to accelerate their expansion plans.”

Reliance declined to give any details about the planned placement, but reports say the company could be planning to raise as much as $1bn from a share issue. Reliance said it might hold a stock market listing some time early next year.

By subscriber numbers, Reliance recently pulled ahead of Bharti Tele-Ventures’ Airtel service. If Reliance, largely a CDMA operator, includes its small GSM service, the company has 15.5m subscribers, compared with Airtel’s 14.7m.

However, a feud between Reliance Group’s Ambani brothers, Mukesh and Anil, which ended in the conglomerate being split between the pair, has delayed the wireless company’s efforts to more aggressively raise capital to finance expansion.

At 65m subscribers, India’s mobile market is the third largest in Asia after China and Japan but remains far from saturated at only 6 per cent penetration.

The FT earlier reported Reliance had secured commitments for its share placement from Citibank Private Equity, Carlyle, Deutsche Bank, CVC Ventures, Blackstone, and Temasek, Singapore’s state-owned investment company.

However, analysts said Reliance would be better off linking up with a global telecom operator rather than an investment services firm, as Bharti had done through its partnership with Vodafone.

“It makes more sense to get a strategic partner,” said an analyst at an Indian stockbroking firm. “They can share technology and brand products much
better.”

Reliance’s CDMA format narrows the list of potential partners because most use the GSM standard. SK Telecom, of South Korea, and US-based Sprint are among the exceptions.

As a late entrant in the mobile market, Reliance has also been forced to undercut the prices of incumbent operators to gain customers.