The undersea cable unit of Reliance Communications, has applied to list in Singapore, two sources with direct knowledge of the matter said, a move that could raise $1 billion to help its parent company pare a heavy debt burden.
Flag Telecom is seeking to raise $1.5 billion, according to the Business Standard newspaper, but sources have said that $1 billion is a more realistic target.
Reliance Communications, controlled by billionaire Anil Ambani, has long been trying to raise funds to cut its debt load, which stood at $6.9 billion as of December - but with little success.
India's second-largest mobile firm by users competes with 14 others in a highly competitive Indian mobile phone market and has seen profits decline for 10 straight quarters to December.
A hoped-for IPO of its telecoms tower unit failed to take off and a planned sale of the business has dragged on for nearly two years, forcing the mobile operator to tap the debt market recently.
It recently secured $1.2 billion in Chinese loans to repay overseas convertible bonds due for redemption this month.
Sources have also said Reliance Communications is in talks with US buyout giants Blackstone (BX.N) and Carlyle CYL.UL to sell its telecoms tower unit in a more than $3 billion deal, but the transaction has not yet been completed.
The Flag Telecom IPO is expected to be launched in the second quarter of 2012, the sources said.
Reliance Communications in 2003 acquired the FLAG undersea cable network for $207 million and the business is now part of its Reliance Globalcom unit, which owns the world's largest private undersea cable system spanning 65,000 kilometres, according to its website.
In December 2009, sources had told Reuters that Reliance Communications hoped to raise around $3 billion by selling the undersea cable business. It found no takers.
The company has appointed Standard Chartered, DBS Group Holdings and Deutsche Bank as the main advisers for the Singapore offer.
Shares in Reliance Communications, valued by the market at $3.8 billion, were trading nearly 1 per cent higher in a weak Mumbai market at 0501 GMT.
The stock is up by nearly a third so far in 2012, compared to a 12.5 per cent rise for the main stock index in the same period.