With the Lok Sabha passing the Taxation Laws (Amendment) Bill on Wednesday, the government can finally go ahead and
demerge the surplus 773-acre VSNL land to form a new company, Hemisphere Properties India. This is because the Bill exempts asset sale by PSUs from capital gains tax.
It has taken the government almost 14 years to take steps to demerge the land as VSNL, a listed company which was disinvested in February 2002, wherein the government sold its 25% equity through a strategic sale to the Tata group. This reduced the government’s stake to 27.97%, of which 1.85% was sold to VSNL employees.
The demerger of land could not take place because the Tata group, which was not supposed to have any shareholding in the demerged land company, refused to pay the stamp duty as it was neither the owner of the land, nor going to be the beneficiary in any form.
The valuation of the land, which is spread across five locations in Delhi, Kolkata, Chennai and Pune, is R6,156 crore based on the circle rates of 2009. In Delhi, around 70 acres of land is in the posh Greater Kailash area of south Delhi, and another 58 acre is in the Chhattarpur area.
Stringent guidelines were put in the sale clause of VSNL wherein no benefit was to accrue to the bidder from the demerged land and its sale or any form of revenue and shareholding in the resultant company. The surplus land was to be transferred to another company and the bidder who acquired the stake in VSNL (the Tata group) were barred from purchasing shares in the new company owning the land.
The new company was to have the exact shareholding which VSNL did before disinvestment.
Thus, the major beneficiary of the proceeds of the sale of land now would be government, which has 51% stake in HPIL. Minority shareholders and ADR holders will get around 25%, while around 4% will go to the Tata group as it bought some shares from the market prior to the disinvestment.
The benefit for Tata Communications, the current owner of the firm, will be that it will be able to raise fresh funds, which it was unable to do earlier as investors wanted full clarity on the land issue.
This is the reason Tata Communications shares on the BSE on Wednesday closed up 5.6% at R482.4%.
The demerger of the land could not be done before the disinvestment because it was also listed on the New York Stock Exchange (NYSE) and the then NDA government felt that stripping off the land from the company before selling it off would have been objected to by the shareholders who may have called it nationalising the company.
They could have gone for litigation, which would have blocked the entire sell-off process. Therefore, the idea came to sell the services part of the company and not the land.