NEW DELHI/SINGAPORE Indian billionaire Anil Ambani's Reliance Communications (RLCM.NS) is looking to raise up to $1.5 billion in a Singapore listing of its undersea cable unit, two sources said, though poor risk appetite globally and the company's unsuccessful deal-making history pose challenges.
Reliance Communications, India's second-largest mobile firm by users, has long been trying to raise funds by selling assets to cut its debt load - $6.5 billion as of September - but has had little success.
The carrier, which competes with 14 others in a cut-throat Indian mobile market, has seen profits decline for nine straight quarters to September and its shares have been battered.
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 Reliance to tap the debt market again.
A day after Reliance Communications announced it secured $1.18 billion in Chinese loans to repay overseas convertible bonds due for redemption in March, sources with direct knowledge of the matter said on Wednesday the company is looking to list the undersea cable unit as a business trust.
Reliance Communications plans to sell 75 percent of the wholly-owned unit, one of the two sources said, while the other source said a listing could happen between July and September and that the company hoped to raise at least $1 billion.
Deutsche Bank (DBKGn.DE) is arranging the planned share sale, said the sources, who did not want to be identified as the plans are not yet public.
Any IPO from Anil Ambani's group must overcome the legacy of Reliance Power (RPOL.NS), which went public in early 2008 in a $2.9 billion IPO - then India's biggest - but never rose above its issue price.
"The group is cash-strapped and needs money for debt repayment and expansion programmes," said Arun Kejriwal, a strategist at KRIS in Mumbai.
"But if you want a good valuation, you need to retain a majority stake. If you're selling a large chunk today, people will think: the business is going to lose its charm tomorrow, that's why you're selling."
Also, volatility in global markets has sapped investor demand for new listings. Asia-Pacific IPO issuance dropped 51 percent in 2011 and the downturn is expected to continue well into this year.
" The take-up rate will very much depend on the pricing, though we noted investors' risk appetite declined over the past few months," said Ng Kian Teck, lead analyst at SIAS Research in Singapore.
"That said, the undersea cable asset is rather defensive in nature and may attract some risk-averse investors looking for companies with a stable business model and dividend."
Shares in Reliance Communications, valued at about $3.5 billion, slipped 0.2 percent in Mumbai after rising as much as 3.3 percent earlier. The stock has slumped 90 percent in four years.
UNLOCKING SHAREHOLDER VALUE
A company spokesman declined to comment on any IPO plans, but said in a statement the company "continually works on various options to unlock value from its unique combination of global telecom assets for the benefit of its shareholders".
A Deutsche Bank spokeswoman in Singapore declined comment.
Reliance Communications in 2003 acquired the FLAG undersea cable network for $207 million and the business is now part of its Reliance Globalcom unit, which owns the world's largest private undersea cable system spanning 65,000 kilometres, according to its website.
In December 2009, sources had told Reuters that Reliance Communications hoped to raise around $3 billion by selling the undersea cable business. It found no takers.
Sources have said the company is in talks with U.S. buyout giants Carlyle Group CYL.UL and Blackstone Group (BX.N) on a telecoms tower deal that could be worth more than $3 billion, but they have said a deal was not close to completion.
A deal to combine the tower business with India's GTL Infrastructure (GTLI.NS) collapsed in 2010, while Reliance Communications was also unsuccessful in its attempt the same year to sell a 26 percent stake in itself.
(Additional reporting by Eveline Danubrata in Singapore; Editing by Tony Munroe and Ian Geoghegan)
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