Shares in Reliance Communications, India's number two mobile operator, fell more than 2% on Monday amid fears that a family feud could delay a multibillion-dollar tie-up with SA's MTN
Energy group Reliance Industries, run by Mukesh Ambani, said last week it had the right of first refusal to a controlling stake in Reliance Communications, owned by younger brother Anil Ambani. Forbes magazine ranks the brothers among the world's six richest men.
Reliance Communications has been in exclusive talks with MTN since late-May about a deal that could create a top-10 global telecoms firm. As part of a tie-up, Anil Ambani would likely swap his control of Reliance Communications to become the largest shareholder in MTN.
The telecoms firm on Friday called Reliance Industries' claim to first refusal "legally and factually untenable, baseless and misconceived".
"The market hates uncertainty, and any such news would not help the stock," said Jayesh Shroff, fund manager at SBI Mutual Fund.
"I see the stock subdued in the short-term at least," said Harit Shah, telecoms analyst at Angel Broking. "Sentimentally, it is negative unless a clear settlement is arrived at."
By 0926 GMT, Reliance Communications shares were down 2.2%, at 531.65 rupees, in a Mumbai market up more than 1%. Shares in Reliance Industries, India's most valuable company, were up 0.2%.
Reliance Communications said Reliance Industries claimed the right based on an agreement made when Reliance Communications was under Reliance Industries control.
A spokesman for Reliance Industries said on Friday the company had told both the Anil Dhirubhai Ambani Group (ADAG), of which Reliance Communications forms part, and MTN of the agreement in "good faith", adding ADAG had never previously questioned the validity of the agreement.
Indian media, engrossed in a long-running feud between the Ambani brothers, reported that Reliance Communications was ready to defend any legal action taken by Reliance Industries and would claim full costs and damages.
Newspapers said Reliance Industries sources said a January 2006 non-competition agreement was different to a family deal struck six months earlier that divided the Reliance empire between the brothers.
"When litigation becomes a part of the story, the stock traditionally loses favour and flavour," said Arun Kejriwal, strategist at KRIS, an investment advisory firm.
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