Sole bidder scenario may impede VSNL divestment process

Vandana Gombar in New Delhi

Will there be more exits from the list of aspirants for the government’s 25 per cent stake in Videsh Sanchar Nigam Ltd (VSNL)?
Though there were reports of the Tatas planning to exit from the race, the company’s spokesperson denied any such development. “There has been no such decision taken at this point of time,” the spokesperson said. Tata firms involved in the VSNL bid include Tata Industries, Tata Power and Tata Steel.

Analysts however expect the Tatas to drop out of the VSNL race sooner rather than later. “Given limited funds, and a choice between investing in aviation or telecom, the former is a better strategic fit for the group,” an analyst with an overseas consultancy firm said.
Other bidders still in the race are Reliance and the BPL-CenturyTel consortium. The latter is also mulling an exit from the VSNL race, sources said, though BPL officials denied any such plan.

Should the Tatas and BPL-CenturyTel opt out of VSNL race, Reliance will be left as the sole bidder for government’s VSNL stake. And this, say analysts closely associated with the divestment, could be the undoing of the VSNL divestment process. Though there have been cases of single bid divestments before (sale of Modern Foods to Hindustan Lever), VSNL is a much more politically sensitive case.
“Telecom is a much bigger game than bread (Modern Foods). The government will try and avoid such a situation...and to do that it may have to cancel the whole bidding process, in an extreme situation,” the telecom analyst of a securities firm said.

There is however unanimous opinion in the industry against any delay in disinvestment. “The valuation of VSNL is declining by the day, and this is not merely a function of declining stock markets. The fundamentals of the firm’s business are changing (for the worse),” said Vineet Nigam, telecom analyst at ICRA. Accounting rates, or rates at which telecom carriers settle international calls, are set to decline sharply post January 2002. In addition, VSNL’s monopoly on international voice telephony will end by April 2002.

Further, many crucial decisions have been put on the back-burner due to the impending disinvestment. These include the selection of a partner for its portal, as well as the fate of its value-added subsidiary—VSNL Seamless Services Ltd. “It is in the interest of the government and the company to conclude the disinvestment as soon as possible,” added Mr Nigam.

VSNL is the country’s largest Internet Service Provider and had about 630,000 Internet subscribers on March 31, 2001.