Reliance seems to be on its way to divest a major chunk of its US business units which it built up in a series of acquisition. ET reports that Reliance Communication will offload its two major business units namely FLAG Telecom and YIPES in US to raise some $ 3 billion in cash.
FLAG Telecom (stands for Fiber-optic Loop Around the Globe) was acquired by RCom for $211 Million in 2003 and managed by its subsidiary Reliance Globalcom. Flag Telecom owns and operate major undersea cable (some 50,000 km of undersea fibre optic network) utilized for broadband operations across the world. Earlier we heard rumors of Google clinching a data deal and even taking a part stake in beleaguered firm acquired by RCom.
Yipes on the other side serves corporate clientele in U.S including some stock exchanges. YIPES also has fibre optic coverage in major US cities along with some international presence in Hong Kong and Tokyo. It was acquired for $300 Million not so long ago in 2007.
Japan’s KDDI and U.S. operators AT&T and Verizon are rumored to be in the fray to acquire the operations. The bandwidth demand is on a continuous increase after a slowdown witnessed in post-dot com bust.
Reliance was always looking at part selling its stake in U.S operations but never even hinted at complete divestment. If it were to really sell these assets then it will have to revoke its rights on whopping undersea cable it owns and operates in global arena. It is also to be noted that both the acquisitions were at dirt cheap prices and if it is able to sell it for $3 billion then it would rake in a six times gain on its investment.
Reliance on the other side should be looking at negotiation pact with the buyers so as to see uninterrupted bandwidth supply to its Indian operations even after the sale. The cash will clearly help it to retire a portion of its mounting debt of Rs.225 Billion and also help it to focus more on Indian operations specially its GSM foray.
