Government moves closer to stake sales in VSNL, IBP

Surojit Gupta & Shailendra Bhatnagar

NEW DELHI: The government on Wednesday moved closer to wrapping up stake

sales in overseas telecoms monopoly Videsh Sanchar Nigam Ltd. and oil marketing

firm IBP Co. Ltd., setting a January deadline for inviting price bids.

Disinvestment Minister Arun Shourie told reporters after a meeting of the

privatization panel the government had finalized the draft share holders'

agreement for both firms. "We will invite financial bids for VSNL by the

end of January," Shourie said, adding the government would stick to the

stake sale deadline.

Shourie also said the government would offer a 51 per cent stake in state-run

Shipping Corporation of India (SCI), the country's largest shipping company, for

sale. The government owns nearly 80 per cent in the shipping giant.

These big-ticket sales are a part of India's ambitious privatization drive

that seeks to raise Rs 120 billion in the current year. But global economic

uncertainty following the September 11 attacks on the United States has made it

hard to find buyers, further complicating the process suffering from stiff

opposition from labor unions and political parties.

VSNL shareholders’ agreement

Under the shareholders' agreement for the New York Stock Exchange listed VSNL,

the company would get a two-year preference over private players for being the

most preferred traffic carrier, based on price parity, from Bharat Sanchar Nigam

Ltd. and Mahanagar Telephone Nigam Ltd.

The government plans to cut its 52.97 per cent stake in VSNL to 26 per cent

by selling a 25 per cent controlling stake to a strategic partner and another

1.97 per cent to VSNL's employees.

Shourie said the government had incorporated a call option for the strategic

partner to enable it buy out the government's remaining stake after five years

in the cash-rich telecoms giant. "This indicates a road map for further

privatization of VSNL," Shourie said.

VSNL, which is also India's largest Internet access provider, holds some

1,400 acres of land in various parts of the country. But this, Shourie said,

would not be a part of the stake sale and added the government was keen to

demerge the land into a separate company ahead of VSNL's privatization.

"The bidders must know that the bidding is for VSNL's income stream and its

core assets, and not for the land," Shourie said.

IBP on the block

Shourie said the government also finalized the shareholders' agreement for

the 33.58 per cent stake in IBP, which has nearly 1,500 petroleum products

retail outlets mostly in the northern and eastern parts of India. The government

owns nearly 60 per cent in the firm.

Relaxing IBP's bidding rules further, Shourie said the strategic partner

would now have to invest Rs 20 billion in the hydrocarbon sector within 10

years, failing which a 25 per cent penalty would be imposed for each year.

Shourie said even state-run firms which had entered the bidding fray for the

government's stake would also have to make open offers to other shareholders as

per guidelines issued by the country's stock market regulator. The panel decided

to offload the entire 98.7 per cent government stake in Hindustan Copper Ltd.

after financial restructuring of the money-losing metals firm.

Shourie said the government would sell its remaining 26 per cent stake in

bread maker Modern Foods Ltd. to its current owner Hindustan Lever Ltd.

The panel fine-tuned the privatization guidelines for state-owned hotel

properties, and decided to invite fresh bids for some in the absence of any

buyers.

(C) Reuters Limited.