FLAG Telecom to list, divest 75% for $1.25-1.5 bn

Listing on Singapore SE under business trust structure

Reliance Communications-controlled FLAG Telecom has filed a prospectus in the Singapore Stock Exchange to list and divest 75 per cent stake in the submarine cables business for $1.25-1.5 billion (Rs 6,250-7,500 crore).

The transaction is expected to be completed by the second week of May, according to the prospectus filed on Friday.

The money being raised by the Anil Ambani group company will be used to reduce the debt on Reliance Communication’s books. The telecom company has a total debt of Rs 35,000 crore.

The bankers for the issue include Deutsche Bank, DBS of Singapore, Standard Chartered and Industrial & Commercial Bank of China.

A spokesperson of Reliance Communications, however, declined to comment on the issue.

FLAG’s submarine assets and business will continue to be controlled by the existing management, ensuring continuity in operations, according to international banking sources involved with the prospectus.

Bankers say FLAG will be listed under the business trust structure. The company is a part of Reliance Globalcomm, which is 100 per cent owned by RCom. After the divestment, RCom will continue to hold the remaining 25 per cent equity stake.

FLAG was acquired in 2001 by Anil Ambani for $211 million. It controls five undersea cable networks, which cover over 65,000 km. Talk of the FLAG listing has been doing the rounds since 2008, but the plan had to be shelved due to the economic crisis.

For the debt-ridden RCom, the deal is significant as it comes just a few weeks after its plan to sell the tower business reached the final lap. Private equity giants Blackstone and Carlyle Group signed a term sheet to buy up to 95 per cent stake in Reliance Infratel a few weeks ago. The valuation of the business has been pegged at Rs 15,000 crore to Rs 20,000 crore.

If the tower deal also goes through as planned, RCom will be able to wipe out over Rs 27,500 crore of debt.

RCom, which controls Infratel, owns nearly 50,000 towers. It had earlier signed a deal with GTL in June last year to set up a tower company by transferring its assets, but the deal fell through.

Based on this value, RCom will get Rs 31-41 lakh a tower, substantially less than the nearly Rs 1.2 crore a tower the company got by selling five per cent stake to sundry investors in 2007. RCom then had 23,000 towers and sold the five per cent stake at Rs 1,400 crore.

However, many experts say the current price is reasonable, considering the overcapacity of towers and the problems facing the telecom industry.