The Hindu Business Line : RCom jumps on FCCB buyback, stake sale talk

Mumbai, Dec. 11 Reliance Communications shot up close to five per cent on Thursday on reports that global telecom companies are eyeing a stake of up to 26 per cent in the company.

The share price rose 4.8 per cent to close at Rs 239.2 hitting an intra-day high of Rs 249.4.

In a statement to the exchanges in response to the reports, RCom said it has been receiving various proposals from time to time from “reputed telecom international companies” expressing interest in acquiring a stake in it and that “it evaluates such proposals”.

Marketmen said that they were “sceptical” about reports of a possible stake sale in the company.

On Wednesday too, the RCom stock had shot up on reports that the company might buyback the second tranche of its foreign currency convertible bonds (FCCB). The share price was up ten per cent to close at Rs 228. On the FCCB matter, sources close to RCom said that with the gap between the share price of RCom against its FCCB conversion price narrowing in the last two weeks, it did look like an opportune time for the company to buyback its FCCBs.

They said such an option is being considered by the company and would of course be subject to shareholder approval.

FCCB issue

RCom’s FCCBs are listed on the Singapore Stock Exchange and, till about two weeks ago, the company’s shares in the domestic bourses were trading at a discount of more than 50 per cent to the FCCB conversion price.

“Now the discount has narrowed down by 15 per cent to about 35 per cent. Given the size of its FCCB issue (it was for $1 billion), Reliance Communications’ buying back a part or the whole would be a good move. And it does provide a good yield,” said the source. He also said that a formal decision might be made in the next fortnight or so.

Reliance Communications had, in February of last year, issued zero coupon FCCBs to raise $1 billion (around Rs 4,000 crore). The instrument has a tenor of five years (February 2012) at a conversion price of Rs 661 a share, which was at 30 per cent premium over RCom’s then prevailing market price.

The global issue sold across Asia, Europe and the US, was over subscribed three-four times. The proceeds were meant for RCom’s capital expenditure of $2.5 billion during 2007-08.

RCom had, in May of 2006, issued another set of FCCBs to raise $500 million, for which the conversion price was set at Rs.480.68 and this tranche will expire in May 2011.

Following last month’s RBI measures, companies are permitted to buy back their FCCBs either with their forex resources/or after fresh issue of ECBs. The RBI on Saturday announced that it has also now allowed companies to buy back FCCBs out of rupee resources provided that the buyback amount is limited to $50 million and the resources are drawn out the company’s internal accruals.

Best performer

With all these reports it comes as no surprise that RCom is the best performing stock in the Sensex pack for the past one week, said marketmen. It is the only stock scrip that has gained close to 22 per cent in the past week; the only other scrip to have gained 20 per cent is DLF.

RCom has also gained the most among the BSE TECk stocks in the last week.

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