India’s third-largest mobile operator, Reliance Communications (RCOM), is reportedly in talks to sell-off as much as a 26 percent stake in the company to a major foreign telecoms operator. According to a report in India’s Economic Times, which cited an unnamed banking source, the talks concern a two-phased transaction, which will first see the strategic investor picking up shares in the company from the secondary market, and then being issued fresh shares through the preferential allotment route. The source added that any deal would be biased in favour of secondary market purchases (so RCOM can avoid substantial equity dilution) and would also depend on RCOM securing a large premium on its current market value. The report noted that the operator’s market capitalisation has declined 70 percent in the last year and is now under US$10 billion. The source added that at a US$20 billion valuation, even a 5 percent dilution would net RCOM US$1 billion. The report speculated that RCOM will use any cash raised from a sale to acquire 3G spectrum in India’s forthcoming 3G auction and build-out its 3G network. It added that analysts estimate that RCOM will have to payout around US$500 million for 3G spectrum and invest an additional US$1 billion for network rollout. RCOM declined to comment on the story.

It is not known which international telecoms players are involved in the reported talks, but the Economic Times notes that Orange-owner France Telecom, Deutsche Telekom (T-Mobile) and Telecom Italia have all previously expressed interest in entering India, and that US telecoms giants such as AT&T and Verizon could also be involved. A deal between RCOM and one of the big international telecoms players would mirror similar deals this year that have seen Norway’s Telenor, UAE’s Etisalat, and Japan’s NTT DoCoMo enter India via tie-ups with local operators. RCOM is currently one of the few major operators in India without a foreign partner.