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Reports: Reliance to Plant FLAG

Reliance Communications Ltd. (RCom) is mulling over plans to re-list its FLAG Telecom Ltd. unit on the London Stock Exchange to help finance its next-generation network (NGN), reports say.

Last month the Indian operator announced it's investing $1.5 billion to build a 50,000 kilometer IP NGN over four new submarine cable systems, to be completed by December 2009. The cables, connecting Asia, Africa, the Mediterranean, and the Pacific region, will span 60 countries and take FLAG’s total subsea network to 115,000 km. (See FLAG Announces NGN.)

According to the Financial Times, Reliance is sounding out investment bankers on whether to list a 24 percent stake in the carrier to raise over $500 million. A decision is likely to be put on hold for a few weeks while the company pursues a bid for domestic mobile operator Hutchison Essar . (See Reliance Approves Bid and India Mobile Subs Soar in 2006.) The Business Standard reports the listing process could begin in February.

The move would likely form part of Reliance's strategy to "unlock shareholder value" from its subsidiaries. In November, the company’s board approved a scheme to spin out its wireless base station infrastructure into a separate business and in a statement its chairman, Anil D. Ambani, said: "This is the first of a series of initiatives we will be taking to remain asset-light, and enhance our competitiveness, ultimately leading to unlocking of further value for the benefit of our nearly 2 million shareholders." (See Reliance Forms Tower Unit.)

FLAG Telecom was listed on the Nasdaq and London Stock Exchange in a previous life, before filing for bankruptcy in 2002. (See FLAG Flies Into Bankruptcy.) The carrier, which had a market cap of $7 billion at the height of the bubble, was acquired by Reliance in 2003 for the bargain price of $211 million. (See Reliance Raises Flag .) It's now valued between $2 billion and $2.25 billion.

Local press reports indicate that FLAG has already shortlisted NEC Corp. (Tokyo: 6701), Fujitsu Ltd. (Tokyo: 6702; London: FUJ; OTC: FJTSY), Tyco Electronics Ltd. (NYSE: TEL), and Alcatel-Lucent (NYSE: ALU) from a field to 12 vendors to build the NGN, with a contract to be awarded at the end of the month and construction to begin in February.

A Reliance spokesman declined to comment on the reports.

The FLAG buildout comes as activity in the subsea market ramps up across Asia. Reliance has recently signed a $27 million deal with Lanka Bell Ltd. to connect Sri Lanka with FLAG’s Falcon cable system. (See FLAG, Lanka Bell Sign Deal.) A consortium of Chinese carriers and Verizon Communications Inc. (NYSE: VZ) are building a $500 million transpacific cable, the Trans-Pacific Express (TP-E). (See Carriers to Connect China With $500M Cable.)

Videsh Sanchar Nigam Ltd. (VSNL) (NYSE: VSL) is investing $600 million to build two new cables, connecting India with Europe and the rest of Asia. The carrier also recently upgraded capacity on the TGN-Pacific route. (See VSNL Boosts Asia Subsea Capacity.) VSNL is reportedly in talks with Bharti and Orascom to partner on the $350 million cable connecting India with the Middle East and Western Europe (I-ME-WE) to share construction and operation duties.

— Nicole Willing, Reporter, Light Reading

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