UPDATE 2-Reliance Comm unit gets Singapore nod for $1.4 bln IPO-source

Tue Apr 10, 2012 6:52am EDT

* Undersea cable unit forecast to raise $1.4 bln

* Unit's listing to be biggest IPO in Asia this year

* Proceeds to be used to cut debt of Reliance Comm (Adds analyst comment, updates shares)

By Devidutta Tripathy and Sumeet Chatterjee

NEW DELHI/MUMBAI, April 10 (Reuters) - The undersea cable unit of India's Reliance Communications Ltd has received initial approval for its $1.4 billion listing in Singapore, said a source with direct knowledge of the deal, paving the way for Asia's biggest IPO this year.

The unit has received an 'in principle' approval for listing on the Singapore exchange as a business trust and the proceeds will be used to reduce the debt of the parent, the source said, declining to be named as details are not public yet.

A successful offering by the unit, which operates one of the world's largest private undersea cable networks, will be a major relief for beleaguered Reliance Communications which has seen its fair share of failed deals.

India's No.2 mobile operator, controlled by billionaire Anil Ambani, is struggling with $6.9 billion in debt and has posted 10 consecutive quarters of profit decline amid fierce competition.

The share offering could be launched in this quarter and its proceeds will be about 70 billion rupees ($1.4 billion), the source said.

Reliance Communications said in a statement on Tuesday it was evaluating an IPO in Singapore of its undersea cable unit through a business trust. A spokesman for the company declined to elaborate. The Singapore exchange declined to comment.

The IPO will be the biggest in Asia this year, ahead of China Communications Construction's $794 million Shanghai listing and Tesco's $600 million property fund listing in Thailand, according to Thomson Reuters data.

Reliance Communications plans to sell 75 percent of the wholly owned unit in the offer.

The business trust route will help Reliance Communications to publicly float a large chunk of its shares without changes in management ownership.

By listing in Singapore, the unit can also take advantage of some of the most attractive rules for listing a business trust. Business trusts contain assets that pay regular dividends, most of which are distributed to shareholders.

"We won't be surprised to see Reliance coming here with a similar model to Hutchison to benefit from the tax scheme here," said Ng Kian Teck, lead analyst at SIAS Research in Singapore.

Hutchison Port Holdings Trust, controlled by Hong Kong billionaire Li Ka-shing's Hutchison Whampoa, last year raised $5.5 billion through a business trust listing in Singapore.

Ng said investors would look out for what the proceeds would be used for and the percentage stake that Reliance Communications will be selling in the offering.

"If you are selling a substantial stake, that's a red flag. Investors will be quite cautious - are you selling a lemon?"

CORNERSTONE INVESTORS

The unit will begin approaching IPO cornerstone investors starting this week, said a second source with direct knowledge of the matter.

Successful deals have been few and far between for Reliance Communications. A hoped-for IPO of its telecoms tower unit failed to take off and a planned sale of the business has dragged on for nearly two years

The mobile operator was forced to tap Chinese banks earlier this year for loans to repay about $1.2 billion in overseas convertible bonds that were due for redemption last month.

The undersea cable unit has hired Deutsche Bank,

Standard Chartered, DBS and Industrial and Commercial Bank of China as advisers for the public offering of shares.

The unit had 386 customers at the end of December that include Internet service providers and mobile carriers. Its operations cover six of the eight major global data traffic routes and nine data centres, the company's website showed.

Shares in Reliance Communications, valued by the market at $3.4 billion, ended 3.2 percent higher on Tuesday at 85.65 rupees, while the broader Mumbai market rose 0.2 percent.

The stock is up more than 22 percent in 2012, outperforming a 13.4 percent rise in the broader market. ($1=51.20 rupees) (Additional reporting by Saeed Azhar and Charmian Kok in SINGAPORE; Editing by Muralikumar Anantharaman)

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