RCom may sell FLAG in bid to raise $3 bn

RCom may sell FLAG in bid to raise $3 bn

Beijing/Mumbai: India’s Reliance Communications Ltd (RCom) is looking to sell its undersea fibre optic network and US network businesses, hoping to raise around $3 billion (Rs14,010 crore) in cash, three people with direct knowledge of the matter said.

And a person claiming to be familiar with the transaction told Mint, on condition of anonymity, that RCom was looking to sell part of FLAG’s fibre optic capacity to some of its existing customers.

Reliance acquired the FLAG network, which lies at the heart of its global operations, in 2003 for $207 million, and now sells both capacity on the network as well as more lucrative telecom services to other carriers and firms around the world.

The three people, who did not want to be identified because they were not authorized to speak publicly about the deal, said that Reliance had hired Deutsche Bank to advise on the sale and that bids were due in late January. Deutsche Bank declined to comment.

“It is an extreme option...selling its overseas operations," said Yogesh Kirve of Anand Rathi Securities. Analysts said the large debt of the company and its ongoing capital expenditure for GSM expansion in India had required it to scout around for various options to raise funds.

“They have very few choices to raise funds," said Hitesh Kuvelkar, research head at brokerage First Global. “Their capex requirement for expanding their GSM network is huge and they have to raise that from somewhere," he said.

GSM is a technology platform for mobile telephony.

The FLAG business, which stands for fibre-optic loop around the globe, is run by Reliance Globalcom, the firm’s overseas arm. Reliance is also selling Yipes, a California-based ethernet service provider it bought in 2007. Yipes, which was renamed Reliance Enterprise Solutions, provides managed services for companies in the US.

The adviser is shopping the assets to Japan’s KDDI Corp. and US operators AT&T Inc. and Verizon, the three people said. Kuvelkar said other funding options for Reliance included diluting the founder’s holding or selling a stake in its tower arm Reliance Infratel, which has filed for an initial public offering.

RCom shares, valued at around $8.1 billion, fell 1.33% to Rs181.20 each on the Bombay Stock Exchange (BSE) on Monday. The stock has fallen about 19% so far this year while BSE’s main index, the Sensex, has risen nearly 80%. Last month, Reliance Globalcom told Reuters it would more than double its data centre operations over the next 18 months, in a bid to compete with world leaders such as AT&T and BT.

RCom has most of its customers on the CDMA platform, a rival to GSM. Earlier this year, it expanded the GSM business to all of India with a $2 billion investment. The company is part of the business empire of Anil Ambani, who Forbes magazine last month ranked as India’s third richest man with a wealth of $17.5 billion. It has said capital expenditure for the year to March would be lower by one-third from its previous estimate.

Data from RCom showed global operations contributed 31% or Rs2,260 crore, of revenues in the September quarter, and 26%, or Rs523 crore, to its operating profit. At the end of September, the firm had about Rs22,500 crore of debt on its books, with cash reserves of about Rs4,500 crore.

Reliance competes with the likes of Bharti Airtel, Tata Teleservices and Vodafone Essar in India’s fast growing but increasingly competitive mobile market, where average revenue per user has been steadily falling.

Besides dealing with stiff competition, firms have also had to watch their cash as they prepare to bid on third-generation mobile licences being auctioned early next year, and then build new networks to offer services.

Reuters’ Michael Flaherty in Hong Kong and Narayanan Somasundaram in Mumbai, and Mint’s Bhuma Shrivastava in Mumbai contributed to this story.