M&A expectations to renew trading interest in Reliance Communications: BofAML

MUMBAI: The government's move to allow 100 per cent limit foreign direct investment ( FDI) in the telecom sector is a relief for debt ridden sector and auction ready government, says a Bank of America Merrill Lynch report.

According to the report mergers and acquisition expectations, post the FDI relaxation, is likely renew trading interest in Reliance Communications (RCom).

At 11:15 a.m.; the stock was at Rs 145.25, up 1.64 per cent, on the BSE. It touched a high of Rs 145.85 and a low of Rs 140.45 in trade today.

"The policy initiative offers fresh hope of capital availability for an industry whose indebtedness is steep (industry net-debt/EBITDA at ~4-5x) and equity-options were hitherto constrained by ownership complications," the report said.

Analysts at BofAML are of the view that Bharti & Idea, who already have large foreign partners (SingTel & Axiata), are less likely to be M&A targets.

On the other hand, RCom doesn't have any strategic partner and the policy can attract foreign investors.

"RCom has the highest leverage with netdebt/EBITDA at ~4x FY14E. Also, so far, RCom does not have any strategic foreign partner. While FDI policy is only one input into any M&A viability, we think the FDI policy change could spur interest in RCom," the report said.

"Longer-term, M&A attractiveness of RCom will depend on its earnings quality and market presence vis-a-vis other smaller operators," it added.