Reliance's ambitious FLAG IPO plan

Heavily-geared Indian telco Reliance Communications is no longer trying to selll off its enterprise group and instead is looking to lists its subsea cable business.

It’s reportedly planning to raise $1.5bn by selling up to 75% of the group as a business trust on the Singapore Stock Exchange.

Without being able to know all the numbers, that seems ambitious.

PCCW’s Richard Li raised $1.2 bn from the sale of its fixed and mobile telecom operations in Singapore in November.

It was the first telecom IPO in Asia to use the business trust model, which is a combination of unit trust and traditional equities. It’s controversial in that it allows the vendor to keep control with as little as 25% ownership.

That of course makes it more attractive to RCom, which is carrying $5.5 billion in debt, but in contrast to PCCW’s growing consumer telecom business, FLAG merely flogs bits on cables at steadily declining prices; it’s been a long time since a subsea carrier went public.

FLAG has some history. It was the world’s first global cable system, costing around $3.5 billion to build, covering trans-Atlantic, regional Asia and later India-Europe. It opened for business in 1997, crashed with the bubble and was picked up by Reliance for $207mn in 2004.

It’s now a part of Reliance Globalcom, RCom’s domestic and global wholesale and enterprise business unit.

RCom doesn't break out any of its figures on the capacity business, but the Globalcom unit reported ebitda of $113mn on gross sales of $464mn in the September quarter.

Reliance says it has beefed up FLAG by increasing capacity by “400 times” and by joining new cables like the new 15Tbps Singapore-Japan link.

The IPO plan follows an unsuccessful attempt to sell Reliance Globalcom for $3 billion two years ago. RCom denied the reports at the time, but industry executives described it as an “open secret”.

UPDATE: Eric Handa from consultancy and voice speicalist AP Telecom, says he believes that the billion dollar-plus valuation will be "elusive".

"Many of the assets on the Atlantic -FA-1 and Pan-Asia - FNAL have a limited lifespan of IRU capability left. The original purchase price was $200m as well something closer to a multiple of times four is more reasonable... valuation is in the eyes of the beholder and ultimately the market will bear the true test".