The undersea cable unit of Reliance Communications Ltd may be forced to offer a dividend yield of over 10% for its $1 billion Singapore IPO, which is expected to be launched over the next two weeks, sources said on Thursday.
The company is in the process of educating investors about the deal, which it began doing soon after the Singapore exchange approved its plan earlier this month to list as a business trust, sources with direct knowledge of the deal told Reuters.
“The feedback from investors is for a yield of 10% or so,” said one of the sources. IFR reported that Reliance Communications is likely to offer a yield of around 10.7% on its proposed business trust IPO.
By comparison, the HKT Trust telecom spin-off from Hong Kong’s PCCW Ltd in November was priced to yield nearly 9% in 2012, and a rise in the trust’s share price has pushed that down to just below 7%.
Anil Ambani. Photo: Bloomberg
The launch of a deal for the Reliance Communications spin-off, GTI Trust, looks tricky due to weak markets after motor sport racing company Formula One delayed its planned Singapore IPO worth up to $3 billion this month.
One source said a final decision on timing will be made on Friday.
Reliance Communications declined to comment.
At 10%, the yield on the Reliance Communications deal would also be higher than the nearly 7% offered by Singapore-listed Hutchison Port Trust, which owns port assets in China and Hong Kong, and a dividend yield of around 4% for Singapore’s STI Index.
A successful offering by Reliance’s unit, which operates one of the world’s largest private undersea cable networks, would be a major relief for Reliance Communications, which has endured several unsuccessful deal attempts and saw its share price hit an all-time low this week.
India’s No.2 mobile operator by subscribers, controlled by billionaire Anil Ambani, is struggling with $7 billion in net debt and posted an unexpected rise in profit in the March quarter after 10 consecutive quarters of profit decline amid fierce competition.
Reliance Communications plans to sell 75% of the wholly owned unit in the offer.
The business trust route will enable Reliance Communications to float a large chunk of the unit’s shares without changes in management.
Deutsche Bank, Standard Chartered, DBS and Industrial and Commercial Bank of China are the advisers for the public offering of shares.