World VoIP NewsReliance Industries invest USD1 billion in Infotel Broadband Services Reliance Industries invest USD1 billion in Infotel Broadband Services

Reliance Industries invest USD1 billion in Infotel Broadband Services

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Less than a week after the announcement that unlisted Infotel Broadband Services had acquired a pan-India Broadband Wireless Access (BWA) licence, it has been revealed that Reliance Industries, controlled by India’s richest man Mukesh Ambani, is set to acquire the company for USD1 billion.
According to the Business Standard it is also understood that Reliance will pay the INR128.48 billion (USD2.74 billion) fee for the spectrum that Infotel won last week, while it will invest a further INR48 billion in subscribing to fresh equity that is to be issued. On completion of the deal Reliance will hold 95% of the shares in Infotel, and the company will function as a direct subsidiary.

Separately, Livemint reports that Infotel is expected to launch commercial operations within the next two years, with Reliance investing a further USD1 billion on the rollout, with a view to signing up 100 million subscribers in the first five years after inaugurating services.

Such an acquisition has only recently become possible for Reliance Industries; late last month Ambani and his estranged younger brother, Anil, who controls Reliance Communications (RCOM), announced the termination of a non-compete clause in a family agreement which divided their late father's business empire in 2005.

Reliance Industries shares rose 1.7% in India on the news that the firm will buy a 95% stake in unlisted Infotel Broadband Services for 46 billion rupees, or $1 billion. The move could be good news all around, with analyst Saeed Jaffrey of Ambit Capital saying penetration of broadband services in the country has been at “abysmally low levels” partly due to the high cost of computers, Reuters reports.

The company’s revenue growth from the deal is estimated to be subdued, Jaffrey says, raising questions on the “profitability of the new operations… Given the company’s guidance on capex and earnings potential (to break even in 3 years), we believe that the acquisition would be return-dilutive in the short term.” Still, he is positive stance on the firm, with a 1,220 target due to the improving refining environment. The company’s shares were trading at 1,064 on the Bombay Sensex, Wall Street Journal writes.

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