Tatas give a miss to VSNL call

It's five years to the day since the Tatas took over Videsh Sanchar Nigam (VSNL) from the government. It also marks the expiry date of a call option the group has to buy out the government's residual 26.12% stake in VSNL.

Sources at Bombay House, the Tata group headquarters, say they will not exercise the option and just let it be.

This position is at variance from the group's earlier stance when it had approached the government asking them to sell of the remaining stake. Sources said this U-turn is because "there are too many outstanding issues". One of the primary concerns on the Tatas mind is that of the valuation itself. Until now, there has been no agreed formula to arrive at a fair price for the residual share. This, they believe, can hamper final negotiations.

For instance, after Balco was taken over from the government by Sterlite founder Anil Agarwal, he exercised his call option to buy the remaining shares.

But because there was no pre-determined formula, political parties got involved in the valuation. The outcome was vociferous squabbling and the government continues to be a stakeholder in Balco.

Then there is the issue of demerging 700 acres of surplus land from VSNL on which no clarity exists. Add to this the fact that the Tatas have their hands full with tying up funds for its $13 billion acquisition of Corus. Which means, they are in no particular hurry, to divert funds into buy goverment's stake. In any case, the group holds a comfortable 50% in VSNL. As against this, in Tata Power they have only 32% and just 28% in Indian Hotels.

Another irritant is the golden share. As per the agreement between the government and the Tatas, even with one share, the Centre can veto any resolution. Recently, the government blocked a VSNL proposal to subscribe to the Tata brand by paying a royalty. A Tata group spokesperson declined comment.

Going by VSNL's last closing price of Rs 440 on the Bombay Stock Exchange, the government's stake is currently valued nearly Rs 3,300 crore. The Tatas acquired 25% stake from the government in VSNL at Rs 1,439 crore against Reliance's offer of Rs 1.347 crore. They acquired another 20% through an open offer at a cost of Rs 1,131 crore.