How Reliance Communications Paid for the Yipes Deal ?

Reliance India MobileReliance Communications acquired Yipes Enterprise Services on Monday in an all cash $300 Million deal. Yesterday, it dumped 5% stake in its subsidiary, Reliance Telecom Infrastructure Ltd [RTIL] company to strategic investors [VCs,PE Funds and FIIs] at a whopping $337.5 Million thus valuing RTIL at whopping $6.75 Billion. This is a very intelligent move by Anil Ambani and his financial wizzard, Amitabh Jhunjhunwala. Why ?

  • Reliance which is on an agressive network expansion needs cash and the sale of stake in RTIL will pay for the Yipes deal.
  • Citigroup in its research report released on Tuesday had valued the RTIL business at mere Rs 60 / share of RCOM. However, with the Thursday’s deal, Ambani unlocked the fair value of RTIL at Rs 135 / share of RCOM
  • Reliance Communications proposes to dump more stake in RTIL to raise cash for RCOM and then list RTIL as well as Flag Telecom separately on the bourses.
  • Unlocking the value of all these companies means, Anil Ambani climbing faster on the ladder of World’s Richest.

With these developments, Telecom Research Analysts maybe forced to revise RCOM’s 12 Month forward stock price target to more than Rs 600. RCOM has moved up by 3.5% since the announcement of the deal. Telecom stocks may not enjoy higher forward P/Es in the next few quarters[3-4] but considering the tremendous growth potential in Indian market, they look good atleast in the short term.

Tags: , , ,