Reliance IPO route to sell FLAG submarine unit not without challenges

Reliance Communications is finding that filing an IPO on the Singapore exchange to sell a large piece of its FLAG cable system as a way to reduce its debt load may not be a quick route out of its problems.

The service provider, according to a Reuters report, plans to sell 75 percent of FLAG via the business trust IPO, which it plans to conduct in the next two weeks.

Singapore's exchange approved the business trust plan earlier this month. The plan will enable Reliance to "float a large chunk of the unit's shares without changes in management," according to the Reuters article.

Sources close to the pending IPO said that it is providing information about the deal to investors, who may want a good-sized dividend yield. "The feedback from investors is for a yield of 10 percent or so," one of the sources told Reuters.

One of the key challenges that Reliance faces with the IPO is the weak economy. This factor drove Formula One, for example, to put its $3 billion IPO on hold this month.

Reliance acquired the five-cable, 65,000-km FLAG submarine cable system for $207 million in 2003. Since 2008, the service provider has been trying to sell the unit, but the worldwide economic crisis drove it to abandon those plans.

For more:
- Reuters has this article

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