Privatizationof

Videsh Sanchar Nigam Limited

Presented by:-Mir Adil Altaf RIPAM BHARADWAJRavikantTaranjeet Singh

Videsh Sanchar Nigam Ltd (VSNL) was created under the Overseas Communication Service as a government owned corporate in 1986.

VSNL was the sole provider for overseas telecommunication service and infrastructure to private telecommunication operators.

Under pressure from the World Trade Organisation, the monopoly of VSNL over international long distance (ILD) voice service was removed in 2002.

VSNL

VSNL Privatization

• Strategic Sale in April 2002• Tata’s holding - 45%• Government’s holding - 26%• Controversy over Rs 1200 crore investment inTata Teleservices

VSNL Privatization

• Events Leading to Privatization

– Minority shares’ sale in 1991-92– Pressure due to WTO agreements– Government keen on reducing burden of running PSUs– Sale proceedings to reduce public debt– Strategic sale considered better than minority sale

Events Leading to Privatization• Divestments– Offloading to domestic investors– Offloading of shares in international market through GDR– Strategic sale• Domestic– In 1991-92, VSNL first disinvested by selling equity of the face value of Rs. 12 crore in favour of various financial institutions, mutual funds and banks. • GDR Issues– First issue fetched US$ 526.6 million (1996-97)– Second issue fetched US$ 185 million (1999)

Sale to Strategic Partner

• Bidding Process– Reserve Price of Rs 1218 crores for 25% stake

– SEBI takeover code needed bidder to purchase20% post bidding– Tata bid Rs 1439 crores, Reliance bid Rs 1347 crores– After takeover, Tata's - 45%, Govt. - 26%– 1.97% given to employees

TTL Controversy

• VSNL board decided to invest Rs 1200 crores in TTL• Over 3-4 years for 20-26% stake• Tatas’ Justifications– Extend VSNL’s reach to basic services– Part of Tata group’s overall telecom strategy• Communication Minister’s objection– Unethical to use VSNL’s cash reserves– BSNL, MTNL might provide better investmentopportunities– TTL might have been overvalued (Merrill Lynch)• Issue resolved - VSNL board sets up a committee to reviewthe quantum and valuation of the proposed investment

Continued …..

• Government had made bad decisions in the past (ICO, Iridium)• Legally, Tata was well within its rights• Issue could have been handled better by better information availability to 26% share holder (government)• Bad publicity - Share prices fell from Rs 188 to 161• It also might have sent wrong

signals to future disinvestments.

Disinvestment versus StrategicSale

• During disinvestment period, P/E ratio was 6 while after Strategic sale gave P/E ratio increased to 11

• Market expects more from private management

• Management of a renowned and strong group became available

Valuations

• Critics claim sale below actual value• In the case of VSNL, share prices didn’t goup as expected• Advisers and professionals might not bedisinterested parties• Lack of accountability (vacuum in topmanagement for a long period)

Government’s Role

• Even after sale, government has responsibility as a shareholder to ensure smooth functioning• Ministry of Communication’s questioning might be right, but should be through decision making structures and not in public• Government should learn to ‘Let Go’

• Since 2002, VSNL has become a major player in the Domestic market.

• In 2008, VSNL has been rebranded as Tata Communications, a global Indian-telecommunications company.

• VSNL is now rapidly growing its retail & corporate presence under the Tata Indicom brand name through its products like high speed broadband, dial-up Internet, net telephony and has an internet subscriber base of over 8,00,000 subscribers.

VSNL after sale and NOW

Conclusion

• Privatization of VSNL led to greater publicexpenditure accountability through higher returnon government’s asset formation• Better quality communications for the citizen• Strategic sale is good as it leads to less confusionamong the governments roles as a policyformulator and a service provider

Thank You