Tuesday, May 31, 2011

Reliance Communications Awaits White Knight

Reliance Communications Ltd. – India’s second largest mobile phone company by subscribers – needs an investor with a fat wallet and a big heart to help wipe the 320.49 billion rupees ($7.11 billion) debt off its books.

Reinhard Krause/Reuters
Reliance Communications’ stock has been pummeled over the last year.

Until then, the high interest costs on the debt – which it took to pay for third generation mobile services and expand its network base – will continue to eat into its profitability.

The company, a unit of Reliance Anil Dhirubhai Ambani Group, late Monday posted a bigger-than-expected drop in its January-March net profit, which tumbled 86% to 1.69 billion rupees. The 11th straight year-on-year decline in quarterly profit came even as the company's revenue shot up nearly 37% to 69.50 billion rupees.

This growth was spurred by a change in the accounting treatment of revenue from the sale of network capacity to customers, leading to an additional 25.45 billion rupees in revenue for the quarter.

The stock opened lower Tuesday, but the performance wasn't as weak as dealers had expected and it later advanced to close up 2.2% at 89.40 rupees (the benchmark Sensex ended 1.5% higher), as investors were encouraged by news of a potential sale.

In a statement released just before the Mumbai exchange opened, Reliance Communications said it had received several “formal indicative offers” to buy its controlling [...]



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