The company intends to enter the domestic retail equity market in the middle of August, sources close to the issue said. The exact pricing will be decided over the next two days, officials said. "The Government is in a fix regarding the pricing. But it will be difficult not to offer such a discount especially when the primary market is down in the dumps," a industry source said.

The retail issue will kick off the Government's disinvestement process which intends to pick up Rs 10,000 crore in the current fiscal year. The VSNL issue will be followed by Mahanagar Telephone Nigam and Indian Oil Corporation.

The Government will be offering 10 lakh VSNLshares to the retail investor and sources handling the issue said that the international telecom operator will be able to mop up Rs 70 to Rs 80 crore through the issue.

"If we take the average of the past six months to fix the price, we get a distorted picture as it has been languishing at very low levels. The scrip has shot up in the past fifteen days to the current level of Rs 1180, but then offering the share at such a price might prove difficult for it to sail through," a source close to the issue said.

The merchant bankers to the issue, SBI Capital Markets and Kotak Mahindra, have already filed the prospectus with the Securities and Exchange Board of India (Sebi) on June 24. Although objections were raised that a price band was not fixed for the issue while submitting the prospectus, Sebi ruled that because it essentially a secondary market transaction with the Government offloading its stake, the compulsion to have a price band was not necessary.

"The issue will be over before the elections as itwill hit the market in mid- August," a source close to the issue said. The cabinet had on July 6 cleared the offloading of the 10 lakh shares through retail offering in the domestic market. Sources said that the because the decision to divest the shares was taken before the announcement of the general elections the model code of conduct will not be applicable to this case.

Officials said that there will be no reservation for banks and financial institutions as it is a pure retail issue where more than 50 per cent of the issue has to be from small investors who apply for less than 1,000 shares according to Sebi rules. The Government has already offered VSNL employees, the shares of the company at a highly discounted price.