SPH said the separation would allow the eventual not-for-profit media arm, which would include publications such as The Straits Times and Chinese newspaper Lianhe Zaobao, to secure funding from a range of public and private sources.

Such funding could include additional financial support from the government, Chairman Lee Boon Yang said in comments reported by The Straits Times.

The government is prepared to provide funding support, the ministry of communications and information said in a separate statement, adding it backs the restructuring proposal.

SPH said its media business has a critical function in providing quality news and information to the Singapore public, so winding up the unit or selling it off were not feasible options.

"However, remaining part of a publicly listed company where it is subject to expectations from shareholders of profitability and regular dividends is no longer a sustainable business model," it added.

Mainstream local media, including SPH publications, has long been seen by critics as pro-government.

After the announcement, company officials faced questions over how it would maintain editorial independence.

The new entity "will not stray from the mission to maintain the credibility, trustworthiness and respect of the media by the Singapore public," said Lee.

SPH will provide initial funding including cash of S$80 million ($59.85 million) and S$30 million worth of shares.

SPH's operating revenue has halved in the past five years, largely due to a decline in print advertising and print subscription revenue, a challenge faced by media companies globally. The SPH media business is expected to continue posting losses.

The latest move by SPH follows its announcement in March that it was conducting a strategic review of its business.

Trading in SPH shares, which have a market value of $2.1 billion, were halted on Thursday. They closed on Wednesday at S$1.79 and the stock is up nearly 60% this year.

Singapore's other major media company Mediacorp is owned by state investor Temasek Holdings.

($1 = 1.3367 Singapore dollars)

(Reporting by Aradhana Aravindan in Singapore and Riya Sharma in Bengaluru; Editing by Krishna Chandra Eluri, Martin Petty)