February 07, 2002 | Financial Express

VSNL

After CMC, the Tatas once again have emerged successful by acquiring 25 per cent stake in the government PSU, Videsh Sanchar Nigam (VSNL), for a consideration of Rs.1,439 crore or Rs. 202 per share. The acquisition is made well above the prevailing market price of Rs.170 as also the reserve price of Rs.171 or Rs.1.218 crore for governments 25 per cent stake. This means the Tatas have acquired the stake at 18 per cent premium to VSNL's market/reserve price. But this should not be the problem considering the spin-offs of the acquisition.

This acquisition of 25 per cent government stake, from its 52.95 per cent stake in VSNL, is surely going to help establish Tatas in the telecom sector as an integrated player. The Tatas were lagging way behind new entrants like Bharati Tele, Reliance etc. owing to non-availability of national long distance (NLD) licence.

Apart from this, the acquisition of VSNL also brings in many benefits to Tatas considering the fact that VSNL is an exclusive provider of international services within and from India. Besides being the largest dedicated Internet Network in India, it has well thought out future plans in place. VSNL, has signed a memorandum of understanding (MoU) with Antrix, the commercial arm of the Indian Space Research Organisation (ISRO) for acquisition of satellite capacity in the Indian ocean region.

As a part of continuing liberalisation and deregulation of the telecommunication market, the government recently announced guidelines and eligibility criteria for entry into NLD and Direct-to-Home (DTH) business. Also, in September 2000, the government announced its intention to allow private players to provide international telephone services from April 2002. This means terminating VSNL's monopoly two years ahead of schedule.

However, the government compensated VSNL for this termination. VSNL is provided with financial benefits including a five year reimbursement of licence, entry and revenue sharing fees and exemption from performance linked bank guarantees. All these benefits will now be available to Tatas, which otherwise would have cost more than Rs.500 crore, apart from revenue sharing and back-bone set up expenditure. With these divestment decisions, the government has spurred the process of privatisation.