Earlier this month, Reliance Communications got approval from Singapore to IPO its submarine cable unit and plans to make it happen next month. But as it has educated investors on the unit’s potential, those investors have apparently been educating them in return about what they are willing to pay for.
According to reports today, in order to reach their target level of $1B or so they may nave to offer a very high dividend yield of 10.7% or more. I’m sure that’s not what they had in mind when they started this process, but apparently the parent company’s need to reduce debt is paramount here.
With both Pacnet and Reliance’s unit both available and lonely lately and Cable & Wireless Worldwide acquiescing to reality, it seems clear that assets like these are not as hot right now as some may have been thinking they would be. Metro fiber still brings a premium in the USA, but for anything else there remains substantial doubt.
While we’re seeing an uptick in new submarine cable plans around the world, many of those seem to have governments backing them in some form. While there are a few cases here and there of private money going after an opportunity, I wonder if more than a few of those big projects out there may similarly find it hard to excite private investors.
It’s just hard to value submarine cable assets in general right now, particularly if you’re not talking about the Atlantic – which has been relatively stable. With demand huge but newly built capacity even huger, it is hard say what pricing will look like just a year or two down the line. And even if it were, nobody is making optimistic long term assumptions in this economy. That’s not a good place to be when trying to sell this sort of asset.
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