Search the Internet          Tips  Sites: Finance, Investment

Tatas regretting VSNL deal

BS Corporate Bureau in Mumbai

The House of Tatas is ruing the day it put in that winning Rs 1,439.25-crore (Rs14.392 billion) bid for a 25 per cent stake in Videsh Sanchar Nigam Ltd.

A triumphant Telecommunications Minister Pramod Mahajan then lionised Ratan Tata as the son-in-law of the government and Tata could not stop blushing.

At Bombay House, the champagne never stopped flowing on the first floor which houses the offices of the directors of Tata Industries and on the ground floor, chocolates were passed around even to visitors in the reception area.

Six months later, there is bitterness and rancour all around. The overwhelming feeling is that they have been sold a lemon. Sources in the Tata group confirmed the 'unhappiness.'

"If the terms of seeking a strategic partner (Tatas) and the trust and faith in which the divestment process was done is belied, and therefore if the strategic partner thinks the other party has not met its promises as understood earlier, it causes unnecessary stress all around. In the circumstances, it is better to seek a return of the assets that are causing the stress," a top group official told Business Standard.

"It is like a marriage that one gets into expecting some minimum benefits. But we see that we have got a very raw deal. We see no reason not to seek a divorce," another official said.

Part of the tension, the official added, was that while VSNL was barred from basic and cellular services, the government-owned Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd were allowed to launch cellular and international long distance services.

"VSNL is bound in by caveats at all stages while the government companies can do whatever is possible to eat into the VSNL pie. The government would have been better off keeping VSNL and merging it with the other telecom companies in its fold," this official added.

"They have sold a strategic stake, with management control, but wish to keep it on a tight leash. Either you part with management control or you don't," he said.

Another top group official said that VSNL's monopoly was supposed to end in 2004 but this ended two years earlier.

"What the government gave in exchange for ending the monopoly is peanuts. VSNL's profits were about Rs 1,500 crore (Rs 15 billion) when it had a monopoly. This year, profits will be Rs 200-300 crore (Rs 2-3 billion). So shareholders have lost Rs 1,200 crore (Rs 12 billion) or so. What did they get for it? The government gave VSNL a national long distance licence worth about Rs 100 crore (Rs 1 billion)."

The trigger point for this reversal in attitude on the acquisition is obviously the Tata Teleservices controversy. VSNL wanted to get a toehold in a company that had a customer base, by investing up to Rs 1,200 crore (Rs 12 billion) to buy between 20-26 per cent in Tata Teleservices. This company operates the basic telephony licence in Andhra Pradesh.

"A few years later, competitors will be able to carry at least traffic emanating out of and terminating at the ends of their own captive customers. That amount of traffic is assured," a top VSNL official had earlier explained to Business Standard, noting that "for a pure carrier, there is no future as telecom companies can take their business to whoever provides the cheapest quotes."

But VSNL's attempt to tap Tata Tele's customers, to start with, met with great resistance from the government. A committee of the board of VSNL directors is currently reviewing the investment decision.

Though group sources said they will abide by the committee's decision, it is clear they don't like the review of an independent board decision.

"Even otherwise, VSNL wanted to invest but the Tata Teleservices board has also to approve of the increase in equity. They also have to draw out the rights and obligations of the strategic investor. Those approvals were not even in the pipeline when the entire controversy was created," a source said.

Powered by

ALSO READ:
The Divestment Development
More Money Headlines