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MTN Deal Talks With Reliance Communications Said Stalled

MTN Group Ltd. (MTN), Africa’s largest wireless carrier, and Reliance Communications Ltd. (RCOM) of India have put negotiations over a potential linkup on hold, according to three people with knowledge of the situation.

MTN is skeptical about the industrial logic behind a deal at a time when India is revising its telecommunications mergers and acquisitions rules, said one of the people, asking not to be identified because the talks are private. Discussions initiated this year might have led to MTN taking about a 24 percent stake in Reliance Communications, another person said. The holding has a market value of about $1.2 billion.

Led by Chief Executive Officer Sifiso Dabengwa, MTN has been looking to the Indian subcontinent for deals as growth of wireless use slows in Africa. The company was twice in talks to be bought by another Indian group, New Delhi-based Bharti Airtel Ltd. (BHARTI), until negotiations unraveled in 2009 amid political opposition in South Africa. Investors may be relieved that a deal is now less likely, said Kate Turner-Smith, a Cape Town-based analyst for BPI Capital Africa Ltd.

“An acquisition of this nature could potentially limit MTN’s growth in other markets,” Turner-Smith said by phone. “Everyone is relatively pleased with the increased dividend yield, and anything that might endanger that would be frowned upon.”

Former CEO

MTN’s dividend yield has quadrupled in the past four years. At about 4.6 percent, the yield is still lower than 7.3 percent for Vodacom Group Ltd. (VOD), a unit of Vodafone Group Plc (VOD), data compiled by Bloomberg showed.

Reliance Communications and MTN weren’t able to agree on the price of a potential transaction, two of the people familiar with the matter said. Bloomberg News reported in May the discussions that could revive MTN’s attempt to link up with the phone company of billionaire Anil Ambani.

A representative for MTN in Johannesburg declined to comment on the talks. Gurdeep Singh, head of Reliance Communications’ wireless business, didn’t answer calls made to his mobile phone.

Last month, MTN named former CEO Phuthuma Nhleko chairman. Nhleko pushed MTN outside South Africa during his almost nine-year tenure. The company’s shares have jumped by two-thirds since early 2009 as it gained market share in the more than 20 countries where it operates.

Takeover Targets

MTN gained 1 percent to 182.45 rand at the close of trading in Johannesburg. Reliance Communications fell 1.5 percent to 140.3 rupees in Mumbai.

India is home to 13 mobile-phone operators, the largest of which are Bharti and Vodafone Group Plc. Potential targets in the market where calls sell for less than a cent a minute also include Tata Teleservices Maharashtra Ltd. (TTLS), which provides services in Mumbai, and Aircel Ltd., the Indian unit of Malaysia’s second-biggest mobile-phone operator.

MTN isn’t alone in re-evaluating its Indian strategy. Sistema, controlled by Russian billionaire Vladimir Evtushenkov, has invested about $3.7 billion in its Indian venture since 2008. After the Economic Times of India reported last month that merger talks between Tata Teleservices and Sistema had advanced substantially, Sistema Chief Financial Officer Vsevolod Rozanov told Bloomberg News that no deal is possible before merger rules in the country are approved.

Property Spinoff

Reliance Communications’ total debt increased more than threefold to 375 billion rupees ($6.2 billion) in the year ended March 31, from 119 billion rupees in June 2006, according to data compiled by Bloomberg. In March, the Mumbai-based company posted a decrease of about 27 percent in fiscal 2013 net income to 6.7 billion rupees.

The company said it had completed repayment of $1 billion in bonds on July 1 after paying back a $500 million loan on May 10 taken in 2007. The company also announced that it plans to spin off its real estate business worth an estimated 120 billion rupees, according to a July 7 statement. The new company, which will be called Reliance Properties Ltd., will be separately listed, according to an e-mailed statement.

To contact the reporters on this story: Christopher Spillane in Johannesburg at cspillane3@bloomberg.net; George Smith Alexander in Mumbai at galexander11@bloomberg.net; Anto Antony in Mumbai at aantony1@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net; Philip Lagerkranser at lagerkranser@bloomberg.net

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