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Government may divest 10 million shares in VSNL

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This will reduce government stake from 65 per cent to just over 54 per cent. The issue is expected to accrue to the government between Rs 8 billion and Rs 9 billion (some $185-210 million).

The size of the issue - to be split into a global depository receipts offering and an issue on the domestic markets - is among the early decisions that a committee set up to manage the VSNL divestment is expected to clear.

The government has set up a five-member committee to finalise its second tranche of divestment in VSNL.

The committee and the core group on divestment will take a final decision on the size of the VSNL issue, expected pricing, selection of global coordinators and expenses.

The committee and the group are expected to hurry through the process so that the government receives the divestment proceeds as soon as possible.

Sources say the government would go ahead with two issues - Concor and VSNL - first. It is also to divest equity in Indian Oil Corporation and Gas Authority of India Limited.

The government has budgeted Rs 50 billion to accrue by way of divestment in public sector undertakings this fiscal.

The government currently holds 65 per cent of the Rs 920-million equity of VSNL. If it divests 10 million shares, its shareholding in the company will come to 54.13 per cent. The government wants to hurry through with the divestment programme this January to shore up its revenues in fiscal 1997-98.

However, it could not do so after the commission for divestment and the then minister for communications Beni Prasad Verma put a condition that the government should not go ahead with the offering unless it ensures a "good price" for the shares.

It was pointed out that the ministry of finance proposal to divest at $11.5 a GDR (equivalent to two shares) was at divergence to an earlier market quote of $13.93 and it was pressing for the issue just to "balance the budget".

The price before the government is even more unattractive now with the VSNL GDR ruling at some $10.5. Given that most GDR issues in the past have been priced at a discount to the ruling market price, the government may receive only between Rs 8 billion and Rs 9 billion, sources said.

The government was also considering a strategic divestment of 5 per cent equity in VSNL in favour of an international telecom carrier. This route is being favoured so that it could get a divestment price at a premium to the current market price.

Strategic investors, typically telecom carriers themselves in this case, pay a higher price than financial investors do.

Further, the higher price offered by a strategic investor would serve as the benchmark for divestment in favour of financial investors.

Finally, for VSNL, the advantage would be it that it could induct an international investor on to its board of directors.

However, this proposal is unlikely to find many takers given the small size of equity on offer to strategic investors.

- Compiled from the Indian media

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