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Billionaire Ambani Said to Plan $1.5 Billion IPO of Submarine Cable Unit

Billionaire Anil Ambani’s Reliance Communications Ltd. (RCOM), plans to raise as much as $1.5 billion through a Singapore listing of its submarine cable assets, said a person with knowledge of the matter.

Reliance may sell 75 percent of Reliance Globalcom’s FLAG Telecom unit in the first half of this year in an initial public offering and is seeking a valuation of up to $2 billion, said the person, who declined to be identified as the process is private. FLAG Telecom would be listed as a so-called business trust, the person said.

Ambani is attempting to sell assets and borrow from Chinese banks as he tries to reduce a debt load that’s dragged Reliance Communications’ shares 33 percent lower in the past year. Ambani last year said he was in an advanced stage to sell a mobile- phone tower unit to buyout firms after ending talks with GTL Infrastructure Ltd. in August 2010.

The company has been trying to raise money selling stakes “but they have not been able to execute,” said Abbas Merchant, an analyst at Jaypee Capital Services Ltd. “The investment climate at this point of time is also not too buoyant.”

Reliance Communications fell 0.2 percent to 88.65 rupees at the 3:30 p.m. close in Mumbai. The shares declined 33 percent in dollar terms in the past 12 months making it the worst- performing stock in the 28-member MSCI AC Asia Pacific, excluding-Japan, Telecommunication Services Index.

At $1.5 billion, the FLAG Telecom IPO would be Singapore’s biggest since March 2011, according to data compiled by Bloomberg. The sale would also be the first by an Indian company in Singapore since 2008, the data shows.

Business-Trust Structure

The valuation Reliance Communications is seeking “looks slightly ambitious,” said Naveen Kulkarni, an analyst at MF Global Sify Securities Pvt. in Mumbai. About $1 billion “will be a more reasonable valuation,” for the undersea cable business, he said.

Reliance acquired FLAG Telecom for $207 million in 2003. The unit manages five submarine cables covering 65,000 kilometers, according to its website.

Reliance Communications, which on Jan. 17 said it would borrow $1.8 billion from a group of Chinese banks, plans to use proceeds from the FLAG Telecom sale to repay debt, one person familiar with the matter said.

The business-trust structure proposed by the company would allow it to pay dividends from cash flow rather than from profit. That makes it a favored option for companies with stable cash earnings. Hutchison Port Holdings Trust (HPHT), which owns terminals in Hong Kong and Shenzhen, raised $5.5 billion in a Singapore IPO last March.

Deutsche Bank

Reliance Communications is also in talks with Carlyle Group and Blackstone Group LP (BX) to invest in the tower unit, called Reliance Infratel Ltd., people with knowledge of the matter said in June.

Reliance Communications and GTL in 2010 failed to agree on a deal that would have meant GTL give new shares worth as much as $3 billion to Reliance Communications shareholders and assume 180 billion rupees of Infratel’s debt, two people familiar to the transaction said that year.

“Reliance Communications continually works on various options to unlock value from its unique combination of global telecom assets,” Rohit Khanna, a spokesman for Reliance Communications in Mumbai, said in an e-mailed statement, without commenting on the IPO.

Deutsche Bank AG (DBK) is arranging the Singapore sale, the person said. Linus Chettiar, a spokesman for Deutsche Bank, couldn’t immediately be reached on his mobile phone.

Indian companies raised $274 million in overseas share sales last year, about a tenth of the amount they collected in 2010, according to Bloomberg data. Deutsche Bank ranked second in managing offerings abroad by Indian companies, the data show.

To contact the reporters on this story: Ruth David in Mumbai at rdavid9@bloomberg.net; Adi Narayan in Mumbai at anarayan8@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

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