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Reliance Communications likely to sell 50% in undersea cable business to Citic Telecom

The Economic Times:  May, 2014

New Delhi: Reliance Communications (RCOM) is in exclusive talks to sell a 50% stake in its undersea cable business to Hong Kong's Citic Telecom for $500million (Rs 2,925 crore) to $600 million (Rs 3,510 crore), a person familiar with the matter said, as the Anil Ambani-controlled company steps up effortsto raise funds to pare debt.

"The talks for a 50:50 JV (for the cable assets) are quite advanced. It should be wrapped up in the next couple of weeks," the person told ET. The overallbusiness is being valued at $1 billion to $1.2 billion.

A spokesperson for India's fourth-largest mobile operator declined to comment, while Citic Telecom didn't respond to an e-mailed request, seeking comment.Global Cloud Xchange, formerly called Reliance Globalcom, houses RCOM's undersea cable business, apart from offering cloud-based services.

On its website, Global Cloud Xchange said its undersea cable system spans 67,000 route kilometres. Hong Kong-listed Citic Telecom is a unit of CITICPacific, and a part of China's largest conglomerate, state-run Citic Group.

RCOM is among the most leveraged of the Indian telecom operators, bogged down by the debt it had taken on to acquire bandwidth and fund expansion, andinterest payment has been weighing on its finances for several years now. In the fourth quarter ended March, its finance cost rose to Rs 907 crore from Rs749 crore in the third quarter while net debt stood atRs 40,178 crore.

For several years now, the company has been trying to reduce debt by selling stakes itself or its units, but no deal has fructified so far. RCOM last yearsaid it was in talks to sell stake in Reliance Globalcom to a consortium of private equity funds that included Samena Capital, and had also previouslyreportedly been in talks with Bahrain Telecom.

The company has been refinancing parts of its existing debt with loans mainly from Chinese banks. Operationally though, RCOM's key parameters such asaverage revenue per user and minutes of usage have been improving, in line with that of its bigger rivals amid with easing competition in the sector.

IRG, a Hong Kong-based investment bank, is advising RCOM while Standard Chartered is advising Citic Telecom on the deal.

Global Cloud Xchange gets most of its revenue from the more than 2,100 enterprises that it services in countries such as the US, the UK, France, Germany,Benelux, Singapore and Australia. Revenue from RCom's international business, at Rs 1,261 crore, made up 21% of total revenue in the January-March quarter.

For several years now, the company has been trying to reduce debt by selling stakes itself or its units.