NEW DELHI/SINGAPORE The undersea cable unit of India's Reliance Communications (RLCM.NS) has applied to list in Singapore, two sources with direct knowledge of the matter said, potentially raising $1-1.5 billion to help its parent pare a heavy debt burden.
The unit will list as a business trust and has been keen to raise up to $1.5 billion in what is set to be Singapore's biggest IPO of the year but sources involved in the process have said $1 billion is a more realistic target.
A successful offering would 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 straight quarters of profit decline amid fierce competition.
Manish Sonthalia, a Mumbai-based fund manager at Motilal Oswal AMC, said $1.5 billion was not out of reach but it would depend on market conditions, while other analysts noted there was a lot of inherent value in cable assets as data demand surges worldwide.
"This one could be good if they can get the right valuation and demand," said Nomura analyst Sachin Gupta.
"The appetite towards Indian telcos is relatively low… but the cable business should have more utility-type characteristics, provided customer and cashflow is sticky."
The IPO is likely to be launched in the second quarter of 2012, said the sources, asking not to be identified. Sources have said previously that Reliance Communications plans to sell 75 percent of the wholly owned unit in the offer.
By listing in Singapore, the unit can 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.
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, forcing the mobile operator to tap Chinese loans again to repay about $1.2 billion in overseas convertible bonds that were due for redemption this month.
"(Reliance Communications') problem is over-leverage and mainly emanates from not being able to monetise their tower business. But the group is in need of raising cash, and whichever asset is getting monetized, it is good for the company," said Sonthalia at Motilal Oswal AMC.
The telecoms tower unit could be bought by Blackstone (BX.N) and Carlyle CYL.UL, with the U.S. buyout giants jointly negotiating with Reliance Communications about a potential deal worth more than $3 billion, sources have said. These talks have dragged on for several months however.
And it also not the first time that Reliance Communications has sought a deal for its undersea cable business. In December 2009, sources told Reuters that it had hoped to raise around $3 billion by selling the unit but found no takers.
The unit, which has hired Standard Chartered (STAN.L), DBS (DBSM.SI) and Deutsche Bank (DBKGn.DE) as its main advisers for the offer, applied for the listing last week and is waiting for the Singapore Stock Exchange's approval before it makes plans public, the sources said.
A third source said Industrial and Commercial Bank of China (1398.HK) may have a bookrunner role in the offer. ICBC was not immediately available for a comment.
A Reliance Communications spokesman in Mumbai declined to comment.
Reliance Communications acquired the FLAG undersea cable network for $207 million in 2003 and the business is now part of its Reliance Globalcom unit, which owns the world's largest private undersea cable system spanning 65,000 kilometers, according to its website.
Shares in Reliance Communications, valued by the market at $3.8 billion, closed 2.3 percent lower in a weak Mumbai market .BSESN after rising as much as 2.8 percent.
The stock is up 28 percent so far in 2012, outperforming an about 12 percent rise in the benchmark on hopes of fund raising.
(Additional reporting by Prashant Mehra in MUMBAI and Daniel Stanton in SINGAPORE; Editing by Edwina Gibbs)