By Andy Sambidge, Dylan Bowman and Reuters
UPDATE 6: UAE telecom says it has agreed to buy 45% of Swan after morning of speculation.
Emirates Telecommunications Corp. (Etisalat) said on Tuesday it agreed to buy about 45 percent of India's Swan Telecom for up to $900 million as it continues to expand outside its home market.
Etisalat, the second-largest Arab telecom firm by market value, said it it would buy about 45 percent of Swan via newly issued Swan shares in a deal valuing the Indian startup at $2 billion.
The remaining 55 percent of the shares in Swan are held by several entities, including the Dynamix Balwas Group (DB Group), a Mumbai-based real estate and hospitality business group, the telecom said.
"Our entry in India... marks an acceleration of our expansion strategy and brings to us an opportunity which matches the scale of our ambitions," Etislalat chairman Mohammad Hassan Omran said in a statement.
Shares in Etisalat eased 2.3 percent on the news, in line with the overall Abu Dhabi market.
The announcement follows a morning of speculation about the purchase of a stake in Swan, which has acquired licences to offer telephone services in India.
India's Business Standard reported in the morning that Etisalat was poised to buy a 49 percent stake in Swan for around $1.3 billion, adding that the company may raise its holding to 51 percent later.
Analysts welcomed the deal, which would give Etisalat a foothold in numerous areas in India. Swan Telecom has permission to offer mobile-phone services in 13 areas in India.
"This is good news. The move to expand beyond its operations in the UAE is expected to be viewed positively because that way it... does not depend on only one market," said Sherif Abdelkhalek, institutions account manager at Beltone Financial.
"The share price might not immediately react (positively) to the news because of current market conditions but in the long term... this will benefit revenues and the share price."
Swan managing director Shahid Balwa said on Tuesday the telecom plans to launch its first operation during the April-June quarter of 2009.
Etisalat said in April it could spend up to $4 billion on an acquisition or a licence in India as it sought to tap into opportunities in the world's second-largest mobile phone market.
The news comes just days after Etisalat said it plans to enter the Iraqi market before the end of the year.
Julfar said on Monday Etisalat was in talks to acquire an existing operator which has a licence covering a limited area in Iraq, and planned to later extend its services across the country. He did not name the operator.
Etisalat, which lost its monopoly at home when Du started operations in early 2007, operates in 16 countries, including Saudi Arabia, Pakistan and Egypt.