Reliance Industries Ltd, India’s biggest company by market value, may spend about US$5 billion on a wireless Internet venture as chairman Mukesh Ambani reenters an industry he left to his brother in 2005, analysts said.
The company plans to spend more than US$1 billion on leasing infrastructure, such as base stations and optic-fiber lines for its broadband services, Alok Deshpande, an analyst with Elara Capital Ltd, said.
Reliance, which briefed analysts on Saturday, will pay 128.5 billion rupees (US$2.8 billion) for Internet services licenses earmarked for Infotel Broadband Services Ltd, which it bought last week for 48 billion rupees, he said.
“That money is about one year’s free cash flow,” said Jigar Shah, the Mumbai-based head of research at Kim Eng Securities Pvt. “They are making an effort to use the cash they are generating from their current operations in a business they have known in the past.”
The acquisition of Infotel returns Ambani to the communications industry five years after he handed over his interests in the sector to his younger sibling Anil, who controls Reliance Communications Ltd. The brothers, who broke up India’s second-biggest industrial group in 2005, last month said they would compete in each other’s sectors for the first time, ending a spat that delayed infrastructure projects and a merger.
A spokesman for Mumbai-based Reliance Industries, couldn’t immediately be reached for comment.
Shares in Reliance Industries gained 1.8 percent to 1,064.75 rupees, the highest since May 14, at 9:56am, compared with a 1 percent increase in the benchmark Sensitive Index of the Bombay Stock Exchange. The shares have declined 10 percent in the past year.
“The telecoms business gives clarity on the deployment of their cash and that helps push up shares,” said Deepak Pareek, a Mumbai-based analyst with Angel Broking Ltd.
Reliance is in talks with banks to borrow US$1 billion, two people with direct knowledge of the matter said on June 4.
Following the acquisition of Infotel, Reliance Industries will deploy 15,000 base stations across India, increasing to 20,000, at a cost of US$1.07 billion to US$1.5 billion over the next three years, Shubham Majumder, a Mumbai-based analyst with Macquarie Group Ltd, said in a note to clients yesterday.
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