Etisalat Reliance Communications Tie up—Tangles untangled

The latest buzz is Etisalat is in talks with Reliance Communications for buying stake in Reliance communications (RCOM). Etisalat will buy 25% from RCOM and then make an open offer for additional 20%, trying to take its stake to 45%.

Now lets look at who is Etisalat and why is has suddenly became interested in RCOM. Etisalat is world’s 17th largest telecom player. It has entered Indian telecom market by picking up 45% stake in a company called Swan Telecom. Swan Telecom is a company floated by DB reality (A real estate giant) The Company received 2G spectrums license for 15 circles across India in 2008. However they are not able to rollout the network completely yet.

The story begins way before Swan has been awarded a 2G spectrum license. RCOM held 9.9 % stake in Swan telecom in 2007 and the rest has been held by a company called Tiger traders. Nothing is wrong, a telecom operator can hold maximum10% stake in other telecom company. However the Board of directors of Tiger Traders was Reliance ADA group employees and their addresses were also the same as Reliance ADA group firm address. RCOM gave 992 crores to Swan Telecom by way of redeemable share with coupon value of one rupee (This was in addition to the 9.9% stake of Reliance ADA group in Swan). What this means is that the though Reliance ADA group paid 992 crores to Swan, however the Swan will pay interest only on 99.2 lakhs. So why Reliance ADA was so kind with Swan? (Source)

When all these things were happening RCOM was also trying to enter the GSM market and it was facing issues due to regulatory restrictions .However the story changed before Swan applied for GSM spectrum. The Reliance ADA board of directors stepped down from Swan telecom board way before Swan telecom applied for GSM spectrum. To add to this, Swan telecom returned all the money paid by Reliance ADA group before it got the license.

Now why did this happen? WHAT I FEEL IS? … RCOM wanted to enter into GSM market , however it can not enter GSM market due to regulatory issue. So it tried to invest in Swan Telecom. Thus if Swan Telecom get the GSM license, RCOM will give Swan, access to its infrastructure and will get access to GSM market. However the game changed in between. A Raja amended the rules and RCOM got the license for GSM. Now there is no need to invest through Swan, so Reliance ADA group withdrew money.

But how come suddenly the rules changed and CDMA operators were allowed to come into GSM market. How is it possible for Reliance ADA to own 9.9% stake in Swan + 992 crore preferential shares? , which takes Reliance ADA group’s holding beyond 10% allowed by TRAI/ DoT. These are some of the questions for which answers need to be found.

So to conclude, Etisalat which is a major partner in Swan telecom is picking stake in Reliance communications now, it’s not strange. These may be some old knots which are getting visible now.

Well there are lots of other aspects of these incidents; however as of now I will restrict myself to this!

Request your comments and views on this

[Guest article by Mahesh Bendre.]

Total
0
Shares
Leave a Reply

Sign Up to Newsletter

Daily.