VSNL, Tata group justify action

NEW DELHI MAY 29. A major row has erupted between the Government and the Tata Group, the new owners of the disinvested Videsh Sanchar Nigam (VSNL) over the propriety of the latter in diverting Rs. 1,200 crores from the company's reserves to an ailing group company, Tata Teleservices.

Sanchar Bhavan sources here asserted that the Government nominee on the VSNL board, Rakesh Kumar, had opposed the decision at the board meeting and had claimed that there was no unanimity on the decision. He had further alleged that the agenda for the meeting had not mentioned that the investment would be made in the Tata group company.

Our Mumbai Correspondent writes:

VSNL and the Tata Group today justified the investment of up to Rs 1,200 crores in the share capital of Tata Teleservices (TTSL) from the reserves of VSNL. "It is absolutely essential for VSNL to have a customer franchise of its own as it is no more an International Long Distance (ILD) monopoly," said S. K. Gupta, managing director, VSNL, while addressing the press here today.

Mr. Gupta said that the board of VSNL has decided to invest upto Rs. 1,200 crores over a four year period in the equity of Tata Teleservices (TTSL) and consequently take a stake of 20 per cent to 26 per cent in the estimated final equity of TTSL. The details are to be decided at a later date by a committee consisting of the VSNL management and an independent director.

Further, Mr. Gupta said that the major basic telecom players in India such as BSNL, MTNL, Bharti and Reliance already have access to customers and already have (or are acquiring) licences for National Long Distance (NLD) as well as ILD. ``Under the scenario, for its sustained viability, VSNL must necessarily acquire access to customers urgently, otherwise it will find itself without any business with consequent loss of jobs as soon as its competitors offer NLD and ILD to their customers, an event which is not far away.''

VSNL will be making the investment at par along with other Tata entities and such other strategic / financial partners who may wish to invest in TTSL. Mr. N. Srinath, director, operations, VSNL said, "It is a unique opportunity of an investment at par which in itself is a great advantage, as almost all other major players have placed their equities at large premium even while they are making losses. This investment, under no circumstances, can be interpreted as asset stripping; on the contrary, it is an investment in a set of tangible assets to secure the future of the company and protect and enhance shareholder interest".

VSNL's business interests are not in conflict with those of TTSL, while they do conflict with those of other players, as TTSL does not have an NLD of ILD licence. If VSNL does not make investments in TTSL, it would have to build a basic network on its own, entailing an expenditure upwards of Rs. 8000-10,000 crores over the next 5-6 years.

"A stand-alone ILD/NLD business as VSNL has been and currently is, does not have a promising business future, as is evident from the fact that at the time of disinvestment, no bids were received from entities who are not already telecommunication players," said Chauker, managing director, Tata Industries, adding "the object is to make it an integrated player". Mr. Chauker did not rule out the possibility of merging Tata Nova, another company in the telecom space with TTSL in the future.

PTI reports:

Disinvestment Ministry finds decision in order

NEW DELHI MAY 29. Contrary to the strong reaction by the Communication Ministry against VSNL's decision to invest Rs. 1,200 crores in Tata Teleservices, the Disinvestment Ministry has not found any violation of shareholders' agreement by the Tatas who recently acquired 25 per cent stake in the telecom company.

The decision taken by the VSNL board yesterday does not appear to be violative of shareholders' agreement signed between the Government and the Tatas, sources in the Disinvestment Ministry said.

While refraining from commenting on the reported reaction of the Communication Minister, Pramod Mahajan, that the decision was a mockery of the disinvestment process, sources said although shareholders' agreement dealt with clauses relating to affirmative voting by the Government, it only covered fixed assets, and loans and advances.

Anyway, the Government's nominated directors had also given their assent to the proposal, sources said and wondered if the Government should provide directive for a privatised entity instead of allowing it to function commercially as a board run company.

VSNL, in which the Tatas were inducted as a strategic partner earlier this year, decided at its board meeting yesterday to invest Rs. 1,200 crores in Tata Teleservices without consulting the Communications Ministry.

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