| Taking the cash call
Mumbai, July 27: After acquiring Videsh Sanchar Nigam (VSNL) at Rs 202 per share from the government, the Tatas have been buying shares of the international long distance (ILD) telephony major from bourses and averaging their cost of acquisition from the market.
Tata Sons and, to a lesser extent, Tata Investment have made these purchases since June 2002 by taking advantage of the sustained decline in the share price of VSNL.
In the nine months ended March 2003, Tata Sons, the group’s holding company, snapped up 37.20 lakh shares from the market, while Tata Investment, another listed firm within the Tata fold, mopped up 26,000. These account for less than 1 per cent of VSNL’s equity.
The buying binge cost Tata Sons Rs 44.02 crore, while Tata Investment had to stump up a more modest Rs 77.65 lakh. Tata Sons averaged the market purchases at only Rs 118.50 per share. These details were mentioned in the latest filings made by Videsh Sanchar Nigam to SEC.
“The strategy was primarily aimed at averaging costs. Unlike other group companies where it holds around 26-30 per cent, in VSNL its controlling stake is well over 46 per cent,” an analyst tracking the stock said.
Tata Sons started buying the shares from June 19, 2002, when the stock was quoting at Rs 162.75 and continued to chase it as its share price plunged on bourses. The lowest price it had to pay was Rs 79.86 — on March 17 this year — when it soaked up 50,000 shares. This was the month when the purchases peaked, when around 6.5 lakh shares went to the Tatas.
When the government decided to privatise VSNL, the Tatas bid for its stake at Rs 202 per share, through Panatone Finvest, a special purpose vehicle floated for the purpose.
The total expenditure on acquiring 25 per cent of the government’s stake and an additional 20 per cent from the public through an open offer was a whopping Rs 2,590.65 crore. The 7.12 crore shares from the government came for Rs 1,439.25 crore, while the mandatory open offer for 20 per cent equity — 5.7 crore shares from the public — cost the Tatas close to Rs 1,151.40 crore.
For the Tatas, VSNL’s ILD business has seen a erosion in earnings, mainly due to price competition from new entrants like Bharti. However, it has so far managed to retain its two main customers, BSNL and MTNL, the two basic telephony majors by cutting tariffs to as low as Rs 24 per minute, and in some cases to Rs 16 a minute.
The Tatas are also using VSNL’s cash reserves to investing in Tata Teleservices, their basic phone venture. They have reiterated that the basic telephony firm will ensure a captive subscriber base for the ILD major.