Reliance Communications (RCom), India's second-biggest mobile phone company, has hired Germany's Deutsche Bank as arranger to fund the possible acquisition of South African telecom giant MTN Group.
RCom plans to raise about $14 billion, or about 30 per cent of MTN's total enterprise value of $45 billion including premium, from private equity players. The remaining $31 billion will be adjusted with the share exchange of the promoters," a source familiar with the situation told Business Standard.
Deutsche Bank, Germany's biggest bank, is in talks with private equity companies, including the Carlyle Group, the Blackstone Group and Apax Partners to raise funds.
RCom has given Deutshce Bank the freedom to raise funds from private equity companies, banks and other financial players. However, the source declined to divulge the details of the route of funding RCom was considering.
When contacted, an RCom spokesperson declined to comment. RCom, which had commenced the due diligence of the MTN Group last week, is expected to close it by this weekend. "This is a large process as books and financials of subsidiaries in 21 countries have to be checked but the company will close it this week itself," he added.
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Merrill Lynch is advising MTN on the deal. This is RCom's second attempt to acquire MTN Group. RCom Chairman Anil Ambani had met Phuthuma Nhleko last year but the talks failed to culminate into a deal.
Lombard Odier Darier Hentsch & Cie, a company promoted by Lebanon's former Prime Minister Najib Mikati, holds 9.82 per cent stake in MTN while Newshelf 664, an investment firm of the MTN management, holds 13.06 per cent. Directors and subsidiaries hold 0.03 per cent stake. The remaining stake is held by the public.
MTN and Reliance announced they were commencing 45 days of talks last Monday for a form of reverse takeover, under which MTN would take over Ambani's 66 per cent stake in Reliance Communications. The stake is valued at about $20bn based on Reliance's present market capitalisation.
MTN will also be required under Indian rules to make a tender offer to minority shareholders of Reliance for 20 per cent of the company.
If this caused a breach of Indian rules restricting foreign ownership to 74 per cent of a telecoms company, Ambani might swap a smaller stake and use cash to bring his holdings in MTN up to 34.9 per cent. This might be one area in which a private equity firm could participate. The 34.9 per cent figure is the threshold under South African rules beyond which he would have to launch a takeover.