It has shelved plans to sell a small stake to private equity investors, sources said. The company is also considering an initial public offering of about Rs 4,000 crore after March '05, on completion of its second full year of commercial operations. "We have enough money now. The loans we are raising are at dirt cheap rates," the source said.

Consequently, the company has decided that it does not need to offer a stake to private equity investors whose expectation of returns are high. Reliance Infocomm had begun talks with a clutch of private equity investors a few months ago to sell a 10% stake. Three investment banks - JM Morgan Stanley, Enam Financial Consultants and SSKI - were involved in the transaction.

A number of FIIs and private equity investors had expressed interest. These included Singapore-based Temasek, Nomura Securities and Capital International. The talks floundered subsequently, due to differences in valuation. The company is believed to have insisted on a valuation of $10bn, but the prospective bidders were not keen on such a high figure.

At $10bn (about Rs 46,000 crore), the company would have enjoyed a valuation nearly double that of Bharti Tele-Ventures. If the deal had gone through, it would have been the country's highest M&A transaction, beating Grasim Industries' purchase of L&T's cement business at about Rs 2,200 crore.

Reliance Infocomm, which has rapidly notched up a subscriber base of over 8m, is raising about $1.1bn in three tranches. The company will borrow about $500m from the US Exim Bank, $250-$300m from foreign commercial banks and another $250-300m from export agencies. The US Exim Bank had cleared the $500m loan on August 26, and the company is in the process of finalising the remaining amount.

Sources said the money is being raised on the strength of Reliance Infocomm's balance sheet alone. This is significant as the company, in the year ended March '04, posted a loss of Rs 390 crore after providing for bad debts worth Rs 435 crore.

Anil D Ambani, vice-chairman and managing director of Reliance Industries, had said in April '04 that the company will not invest any more in Infocomm. RIL, which holds about 45% in the telecom arm, had invested about Rs 12,000 crore by March '04. "Infocomm will raise its own resources through internal generation or debt," he had said.

The company has been allotted a rating equal to that of sovereign rating, which is 'BB' according to Standard & Poor's and Baa1 according to Moody's Investor Services. Apart from the foreign loans, Reliance Infocomm has tied up about Rs 5,000 crore from domestic banks and financial institutions. The last tranche, about Rs 1,000 crore, was agreed upon last month.

Sources said the funds raised would be sufficient to expand its coverage to about 5,000 cities and towns across the country. It also plans to expand its broadband coverage and roll out its set top box models by March '05. The company intends to tap the capital market after that to raise about Rs 4,000 crore. "We have been successful so far, and we intend to share that success with the Indian public and our investors," a source said.