Reliance subsidiary announces IPO

Reliance Communications, India's second-largest mobile operator, is seeking to raise as much as $1.5bn by listing its telecom infrastructure unit, in defiance of difficult conditions for fresh offerings after a sharp fall in stock markets.

The initial public offering would follow moves by rivals to roll out more phone towers across India and expand coverage in the world's fastest growing mobile market. Building more towers is critical to keeping pace with blistering growth - India added more than 8m mobile subscribers in December, bringing total wireless customers to 233m.

Reliance has proposed to sell more than 89m shares of subsidiary Reliance Infratel, or 10.05 per cent of the company, in listings on the Bombay Stock Exchange and the National Stock Exchange.

Reliance on Monday filed its draft prospectus with the Securities and Exchange Board of India, which could give its approval within a month.

The offering of Reliance's tower unit follows the $3bn IPO by a sister company, Reliance Power, which sold out within a minute when it opened last month. Investors will be closely watching Reliance Power's trading debut, which it said on Monday was set for Monday.

The Indian stock market has fallen 12 per cent since Reliance Power priced its IPO at the top of the range.

Sentiment is so weak that last week, developer Emaar MGF Land, which is aiming to raise $1.6bn, was forced to slash its price range, and healthcare company Wockhardt Hospitals had to reduce the size of its IPO.

Emaar MGF's offer, which closes on Wednesday, had attracted demand for only 27 per cent of the shares on offer to institutional investors by Monday and for a tiny fraction for those in other categories.

A Finance Ministry proposal to increase the mandatory minimum free float for India-listed companies to 25 per cent from 10 per cent is also weighing on sentiment, since some investors fear the move would flood the market with new paper.

In July, Reliance Communications sold 5 per cent of its tower subsidiary to a group of investors for $337.5m, giving the unit an equity value of $6.75bn.

Reliance Infratel claims to have 25,000 towers and plans to have 60,000 by March 2009.

Other Indian telecom operators are raising money to build more towers. A group of investors including Goldman Sachs, Citigroup and Temasek of Singapore in December agreed to invest $1bn in Bharti Airtel's telecom infrastructure unit to expand its current portfolio of about 20,000 towers.

Vodafone, Bharti and Idea Cellular have teamed up to share their Indian telecom infrastructure to reduce the heavy cost of building towers.