* Talks in preliminary stage with Kuwaiti firm - sources
* Newspaper says Zain's Africa ops valued at $10 bln
* Reliance Comm shares rebound after seesawing earlier (Adds background, updates shares)
By Devidutta Tripathy and Narayanan Somasundaram
NEW DELHI/MUMBAI, Aug 18 (Reuters) - Reliance Communications RLCM.BO has started talks to buy Kuwaiti Zain's ZAIN.KW African operations, two banking sources said, underscoring a drive by Indian telecom companies to gain a foothold in Africa.
The assets could fetch a price of about $10 billion, according to media reports, despite the fact that seven out of Zain's 16 African operations made a first-quarter net loss, showing the value of the world's last under-penetrated market.
Mobile penetration is lower than 40 percent in half of Africa's countries, and a dozen have below 30 percent, offering a big opportunity for global mobile firms suffering from saturated markets and falling call tariffs.
Bharti Airtel BRTI.BO, Reliance's larger rival in India, is in exclusive talks for a merger with South Africa's MTN Group MTNJ.J to create the world's third largest wireless firm with more than 200 million users.
Reliance, India's No. 2 mobile operator, and Bharti had separately held talks with MTN last year but failed to seal a deal. Bharti revived merger talks in May.
"Reliance Communications has been looking at some emerging market assets since its deal with MTN fell through," said one banking source with knowledge of the talks.
"They are in the preliminary stages of evaluating the deal (with Zain)," he said on Tuesday, adding that Reliance had yet to appoint merchant bankers.
Another banking source also said the talks were underway.
A spokesman for Reliance Communications declined comment, while Zain could not be reached for comment.
The Kuwaiti firm said last month it was reviewing a possible sale of its African operations -- minus Morocco and Sudan -- after French media and telecoms giant Vivendi VIV.PA called off talks to buy a majority stake in the African business.
Zain Chief Executive told Kuwait daily newspaper Al-Rai that the firm was in talks with three major telecoms firms, including one from India, to sell all or part of its African operations. [ID:nLH350724]
A sale would please cash-hungry shareholders and reverse a strategy of global growth in favour of focusing on Middle Eastern markets. Zain has poured more than $12 billion into Africa since 2005. [ID:nLC214101]
Shares in Reliance Communications, which the market values at about $10 billion, closed 2.4 percent higher at 251.25 rupees after seesawing earlier. The main Mumbai market was up 1.69 percent.
Billionaire Anil Ambani, who took over Reliance Communications in 2006 after a split with elder brother Mukesh, has been looking for acquisitions to expand the telecoms firm's operations.
Ambani lost to Vodafone VOD.L in bidding for Hutch Essar in 2007, the then fourth-largest cellular operator in India, and last year withdrew from stake-swapping talks with MTN after a claim on Reliance Communication's shares by Mukesh. [ID:nBOM252194]
While analysts say Zain's African operations will be a strategic fit for Reliance, the company will have to nurse its stretched financials and tread carefully over a feud between the Ambani brothers.
Reliance, predominantly a CDMA operator, earlier this year spent $2 billion to expand its network on the popular GSM platform, which has been an overhang on its profits.
The Times of India newspaper said Zain's African operations were valued at $10 billion.
Reliance, which already owns telecoms firm Anupam Global Soft in Uganda, may also face competition from firms such as UAE's Etisalat ETEL.AD which has shown interest in taking a majority stake in Zain, according to the head of its international unit.
Zain, which is in the midst of a strategic review and is being advised by investment bank UBS UBSN.VX, plans an extraordinary general meeting on Aug. 31 when shareholders will be asked to vote on amending its ownership restrictions.
The move would pave the way for selling a large stake in the firm. [ID:nLG32521]
For a Reuters blog, see: here -brawl-in-mobile-phone-emerging-markets/ (Additional reporting by Gugulakhe Lourie in Johannesburg) (Editing by Ranjit Gangadharan and Jon Loades-Carter)
Trending On Reuters
The government has turned down the military's request to expand the acquisition of 36 fighter planes from Dassault Aviation SA to plug vital gaps, officials said, nudging it to accept an indigenous combat plane 32 years in the making. Full Article