Big-bang selloff nets Rs 2800cr
Two more oil PSUs in line
Open cheque for shareholders
Rs 202 crore from sale of four hotels
IBP rules out merger for now
Headstart for Tatas in long distance telephony
The winner comes second
Foreign Exchange, Bullion, Stock Indices

 
 
BIG-BANG SELLOFF NETS RS 2800CR 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, Feb. 5: 
In a flurry of decisions, the government today approved the selloff of Videsh Sanchar Nigam Ltd (VSNL) to the Tatas, petro-product marketer IBP Ltd to state-run behemoth Indian Oil Corporation (IOC) and four prestigious state-owned hotels for an overall consideration of close to Rs 2,800 crore.

The Tatas snapped up a 25 per cent stake and control of VSNL for Rs 1,439 crore, which was about 18 per cent above the reserve price of Rs 1,218 crore and about Rs 93 crore higher than the bid submitted by Reliance group company Kritika. The Tatas’ bid worked out to Rs 202 per VSNL share, a 13.48 per cent premium on Tuesday’s closing price of Rs 168.25 on the BSE.

In Mumbai, Tata group chairman Ratan Tata said: “We are pleased to be successful in our bid for VSNL, which will facilitate the enhancement of the spectrum of our telecom services.”

IOC bought a controlling 33.58 per cent stake in IBP with its clinching bid worth Rs 1153.68 crore, nearly three-and-a-half times the reserve price of Rs 337 crore. The second highest bid was by Royal Dutch Shell, which bid Rs 595 crore. Reliance, which had put in two bids through different arms, could not come up even to the second place, though its bid was above the reserve price, officials said.

The IOC bid price per share of IBP worked out to a phenomenal Rs 1551 compared with a market price of Rs 859.70 at the end of trading on the BSE. The market price surged over Rs 141 compared with Monday’s quote.

The two successful bidders, who will sign transaction documents with the government within the next two days, will have to make an open offer for 20 per cent of the floating shares of each corporation they acquired.

With the buy, the successful bidders not only gain stake and management control, they also have the first right to buy up any more stake divested by the government in these companies.

For instance, even after selling off 25 per cent in VSNL, the government still retains control of 27.97 per cent stake, of which it wants to sell off 5.97 per cent to the workers. The remaining 22 per cent may eventually be offered to the strategic partner.

IOC chairman M. A. Pathan was jubilant with his firm’s winning bid despite the high price it will be paying for the right to control IBP’s 1,500-strong retail chain. His logic was that the acquisition would help him take his company’s market share to over 60 per cent, just before the market is opened up to private sector players like Reliance.

The Tata group, on the other hand, is counting on the VSNL buy not only to gain a lion’s share of the international call traffic out of India, but also use up VSNL’s letter of intent to set up a national long distance telecom network.

These two services should help the Mumbai-based group with diversified interests including in steel, infotech and auto-making to add strength to their telecom arms.

   

 
 
TWO MORE OIL PSUS IN LINE 
 
 
OUR BUREAUX
 
Feb. 5: 
The government today announced that it will sell a strategic stake in two other state-run oil majors—HPCL and BPCL—in the near future but refrained from stating how much it would amount to.

In a surprising reversal of its earlier decision, it also announced that state-run companies (read IOC) would not be eligible to bid for these firms.

The policy flip-flop was widely seen as a placatory gesture to the unsuccessful private sector bidders for IBP—Royal Dutch Shell and Reliance—giving these companies another chance to bid for an oil sector PSU with an entrenched market share.

Disinvestment minister Arun Shourie said these two companies would be coming up before the Cabinet committee within three months after the petroleum sector is opened up in April.

However, the former newspaper editor, had a tough time explaining his decision to bar IOC and other state-run companies from the fray.

The Reliance group which has a mammoth refining capacity of 27.5 million tonnes per annum, will now have to focus its attention on the upcoming divestments in either HPCL and BPCL or both of them.

But analysts are bit apprehensive. “At present, both BPCL and HPCL have been able to push their products through the retail outlets. The key question is whether Reliance, if it acquires either one of them, would be in a position to push its

products through these outlets,” an analyst said.

He added that in such a circumstance, the only viable option for the Reliance group would be to invest in setting up its own outlets.

However, sources close to Reliance were unfazed by today’s developments and said the group would continue to follow a three-pronged strategy of looking at potential joint ventures and alliances, acquisition of marketing and distribution assets and developing its own marketing infrastructure to make its mark in the oil sector in the post-APM phase.

But here too the group is reported to have major differences with Indian Oil over their alliance.

   

 
 
OPEN CHEQUE FOR SHAREHOLDERS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 5: 
Shareholders of VSNL and IBP can expect a windfall as Sebi norms will require successful bidders to make an open offer for 20 per cent of the floating stock.

For VSNL shareholders, the gain would come soon after the dividend bonanza that sucked out much of the company’s cash reserves.

The disinvestment ministry had been seen pressing Sebi to set an upper limit on the open offer price based on the amount paid by the successful bidder. Under existing rules, companies have to offer the bid price, or the six-month average market price — whichever is higher.

However, in the present case, the bid beats the six-month average price by a massive margin. The Tatas will have to shell out Rs 1151 crore for making the open offer, taking their total acquisition cost to as high as Rs 2500 crore. Indian Oil will also see its buyout bill swell by Rs 750-Rs 800 crore to around Rs 2,000 crore. IBP shot up 19.76 per cent to Rs 859.75, while VSNL inched up 0.24 per cent to Rs 168.25.

Price correction

The chart-topping bids for VSNL and IBP have whipped an euphoria over PSU stocks, making them the flavour of the season and clearing the way for big changes in the way they are valued on bourses. “There will be a drastic review of rating on PSU stocks,” a dealer affiliated to a prominent bank said. IOC’s bid for IBP at Rs 1,154 will serve as the benchmark for other of HPCL and BPCL.”

   

 
 
RS 202 CRORE FROM SALE OF FOUR HOTELS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, Feb. 5: 
The government today approved the sale of four hotel properties—three owned by ITDC and one by Hotel Corporation of India—for a combined sum of Rs 202 crore.

While 12 hotels owned by the two were on the block, bids came in for only four.

Disinvestment minister Arun Shourie said after a meeting of the Cabinet Committee on Disinvestment (CCD) that the Centaur hotel in Mumbai, owned by HCI, would be sold for Rs 83 crore to the A.L. Batra Group which runs the Radisson hotel in Delhi. The reserve price was Rs 78 crore. The Centaur Hotel, which has 288 rooms and a payroll of 765, ran up a net loss of Rs 3.24 crore on sales of Rs 30.90 crore in 2000-01.

The Singapore-based Silverlink Holdings successfully bid for Lodhi Hotel in New Delhi at a price of Rs 76.22 crore, against a reserve price of Rs 40.36 crore.

Sushil Gupta and Associates, which runs the Hyatt hotel in Delhi, bagged the capital’s Qutab hotel for Rs 35.67 crore, against a reserve price of Rs 31 crore.

   

 
 
IBP RULES OUT MERGER FOR NOW 
 
 
BY PALLAB BHATTACHARYA & ANIEK PAUL
 
Calcutta, Feb. 5: 
The board of IBP Ltd will be reconstituted with three Indian Oil Corporation (IOC) nominees likely to join the new board that will replace the present five-member one. The present board will step down in keeping with the government’s decision to divest management control. The new board is likely to be in place soon.

“With IBP remaining a public sector company, it looks unlikely that the company’s management team will be dismantled,” IBP chairman S.N. Mathur said. He added there was no possibility of the two companies being merged in the near future.

On completion of the disinvestment process, IOC is likely to acquire over 50 per cent stake in IBP. IOC will make an open offer for 20 per cent of the company’s shares at Rs 1,551 per share. If subscribed fully, IOC’s stake will rise to 53.58 per cent. IBP would automatically become a subsidiary of IOC if the latter acquired more than 50 per cent stake in it. The combined market share of IBP and IOC in the petroleum marketing arena would be 55 per cent, Mathur said. IOC’s current market share is about 50 per cent.

IOC has already formed a committee of its directors to examine the changed scenario. An Indian Oil spokesperson said the committee would draw up plans for integrating the operations of the two companies.

“IOC will consult the IBP management as well while formulating a new vision for the combined entity. Top officials of the two companies will meet within a couple of weeks,” he said.

The markets were impressed by the price paid by IOC, which saw the IBP stock soar 20 per cent to Rs 860. This is still about 45 per cent lower than the price at which the open offer will be made. Over 17 per cent of IBP’s equity—2.2 crore shares of Rs 10 each—was traded today on the Bombay and National stock exchanges. Even the IOC scrip gained 20 per cent to close at Rs 178 today.

The market, however, was apprehensive that IOC being a public sector company could be exempted from making an open offer. The stock gained sharply in the last hour after the Securities and Exchange Board of India ruled out that possibility.

   

 
 
HEADSTART FOR TATAS IN LONG DISTANCE TELEPHONY 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, Feb. 5: 
The Tatas are off and running in the race to provide private international long distance telephony service and gain a toehold in the internet telephony and national long distance telephony segments.

Analysts say that the Tatas paid way above the “replacement cost” for setting up a similar set-up, but felt it was a premium paid for securing a flying start in the business.

Arch rival Reliance Industries Ltd may now look at setting up the infrastructure from scratch and analysts allude that it would be a far more economical proposition to set it up on their own. “Reliance has reserved huge cash outlays for its telecom business and it makes sense for them to secure an ILD licence for Rs 25 crore and a bank guarantee of an equal sum to enter the now liberalised telecom arena.

For the Tatas, the prices may look ridiculous, but by virtue of bidding at Rs 202 per share, they have secured a flying start to enter a business, where its group companies Tata Teleservices and Tata Power have already made progress in laying fibre across cities like Mumbai.

They have also gained a crucial advantage of at least 12-18 months over the rest, which is a fair amount of time for any new venture to make a dash out of their starting blocks.

The NLD segment, where VSNL is a new entrant, will be a risk free proposition for the Tatas as the licences are in exchange for forgoing its monopoly on ILD services. It can easily secure a 5 per cent market share in a market sized at Rs 6000 crore, analysts said.

For the Tatas, VSNL comes with 38 earth stations and nine gateways.

Considering their huge network, it is expected that the Tatas will unleash aggressive rate cuts in both NLD and ILD segment, by the time the new entrants take the first tentative steps into the arena.

   

 
 
THE WINNER COMES SECOND 
 
 
FROM JAYANTA ROY CHOWDHURY
 
New Delhi, Feb. 5: 
Is Reliance the real winner in today’s disinvestment sweepstakes even though it did not bag either of the two blue-chips put up for sale? Seems like a paradox, but possibly true.

Although Videsh Sanchar Nigam Ltd (VSNL) is still seen as a good buy by market analysts going by its fundamentals, the fact remains that a series of policy decisions taken over the past year has stripped the telecom major of much of its sheen.

Its huge reserves have been depleted by two tranches of special dividend outflows—a 500 per cent dividend at the end of 2000-2001—and a 750 per cent interim dividend during this fiscal, which together pumped out Rs 3,562 crore from the international call carrier.

Its valuable land assets including the huge VSNL gateway campus spread over dozens of acres in prime South Delhi, adjacent to the posh Greater Kailash as well as prime property in Mumbai and other metros, have also been hived off into a new company specially floated for this purpose.

What now remains is a rump of the original VSNL, with gateways to carry international traffic. Analysts say it would cost Reliance between Rs 500-600 crore to set up rival gateways compared with the Rs 1,439 crore paid by the Tatas.

However, by forking out that staggering sum the Tatas have not lost anything, as, in addition to the gateways, they will get a pool of trained manpower, a huge network, a ready client base and a host of ready-to-use carrier agreements with foreign telecom companies, besides a national long distance telephony right which would make it the fourth player in that lucrative market after BSNL, Bharti and Reliance.

Reliance had not exactly bid cheap for the state-run telecom major; it had quoted Rs 189 a share against the Tatas’ winning bid of Rs 202 a share.

In IBP’s case, the exorbitantly high bid put in by Indian Oil, which was three and a half times the reserve price for the petrol marketer, put paid to the chances of both Shell and Reliance acquiring this lucrative blue chip. Comparatively, Shell bid 80 per cent over the reserve price while Reliance bid about 50 per cent over the reserve price.

IOC, by paying Rs 1,154 crore for the strategic stake in IBP, which comes with a rider of having to pump in another Rs 700 crore to make a public offer for 20 per cent of the company, will also be depleted of much of its huge reserves. This would be a major factor in the race for the deregulated market ahead. However, IOC gets a ready-made retail chain of 1,500 outlets and a strong brand. It is estimated that Reliance will have to spend about Rs 1,000 crore in setting up a rival network of similar strength from scratch, which however works out cheaper than buying out IBP.

Reliance also seems to have been compensated in sorts for its inability to clinch the IBP deal by the promise held out in the government decision to put oil majors HPCL and BPCL on the block soon and to keep first round winner IOC out of the fray.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 44.88	HK $1	Rs.  5.70*
UK £1	Rs. 67.69	SW Fr 1	Rs. 26.60*
Euro	Rs. 41.66	Sing $1	Rs. 25.75*
Yen 100	Rs. 41.13	Aus $1	Rs. 26.35*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs. 4505	Gold Std(10 gm)	Rs. 4480
Gold 22 carat	Rs. 4255	Gold 22 carat	NA
Silver bar (Kg)	Rs. 7850	Silver (Kg)	Rs. 7440
Silver portion	Rs. 7950	Silver portion	NA

Stock Indices

Sensex		3311.73		-  5.28
BSE-100		1616.02		+ 11.20
S&P CNX Nifty	1074.25		-  2.65
Calcutta	 111.34		-  1.02
Skindia GDR	 525.20		-  4.20
   
 

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