Falling shares, Ambani feud could scuttle MTN deal

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India's Reliance Communications Ltd has days to reach an agreement for a tie-up with South Africa's MTN Group, but falling shares and a face-off between the Ambani brothers could all but scuttle a deal.

Shares in Reliance Communications, which is holding exclusive talks with South Africa's MTN to create a global top 10 telecoms company, have shed a third of their value since the company, run by Anil Ambani, said in May the firms were considering a potential combination. Reliance shares fell 6.9 per cent on Thursday.

There is no sign that the bitter rivalry between India's two richest men is letting up. Anil Ambani's aim to create a global company has been threatened by a claim from older brother Mukesh Ambani, who controls Reliance Industries, of first right of refusal on India's No. 2 mobile operator.

"The tiff has almost certainly scuppered the deal," said Emeka Obiodu, a senior mobile technologies specialist at London-based research firm Global Insight.

"As long as there is any uncertainty about the legal validity of a deal, it is unlikely MTN will go through with it. And there is no point in extending talks if the situation will not change."

The 45-day exclusivity period ends on July 8, Reliance said.

Reliance Communications said last month the claim by Reliance Industries would not delay its talks with MTN. But traders in Mumbai earlier this week said concerns that Mukesh may throw a spanner into the works had helped push down the share price.

The lower valuation of Reliance Communications, which now has a market worth of about $18 billion, down from nearly $27 billion when it first said it was in talks, could spoil the share swap that the two firms were reported to be discussing.

"Will MTN still be inclined to give Ambani a big stake, now that Reliance shares are down?" said Harit Shah, telecom analyst at Angel Broking, which has a 'buy' rating on the stock.

Media reports and a source close to the development had indicated the two firms were aiming at a reverse takeover, with a share swap that would give the Anil Dhirubhai Ambani Group the largest shareholding in MTN, and making Reliance Communications a subsidiary of MTN, sub-Saharan Africa's top mobile operator.

"Ambani may also need more cash, now that valuation has fallen, and that will be difficult in this market," Shah said, adding the deal had a "50-55 per cent chance" of going through.