VSNL sets special dividend before selloff

Santosh Menon

NEW DELHI: State-run telecoms giant VSNL said on Friday its board had

recommended a special interim dividend of Rs 75 per share in a bid to distribute

a large cash surplus ahead of its planned privatization. The New York Stock

Exchange-listed Videsh Sanchar Nigam Ltd. is a monopoly overseas

telecommunications carrier and also India's biggest Internet access provider.

The disinvestment minister had said last month that VSNL, one of India's most

cash-rich companies, was sitting on a cash pile worth Rs 40-45 billion, which

the government planned to distribute to shareholders before its sale. The

government, which holds a 52.97 per cent stake in VSNL, plans to lower its stake

to 26 per cent by selling a 25 per cent stake along with management control to a

strategic partner and another 1.97 per cent to the company's employees.

The privatization, billed as India's most ambitious yet in a decade of

economic reforms, has entered its last lap with the government expected to call

for price bids from suitors in the last week of December. The sale is expected

to be wrapped up latest by January.

"Taking into account the investment plans of the company and expected

profit, the board felt that no serious financial problems are anticipated if the

government of India proposal of a special interim dividend of 750 per cent is

accepted," the company said in a statement to the Bombay Stock Exchange.

A VSNL official told Reuters the dividend payout was subject to some

clearances as existing rules did not allow any company to pay dividend in excess

of its current year's profits. VSNL's net profit at end of the first half ended

September stood at Rs 7.34 billion, but the company is not expected to face any

problems on this count as the biggest beneficiary of the dividend is the

government itself.

A 750 per cent dividend along with a 10.2 per cent tax on it would mean a

total payout of Rs 23.56 billion for VSNL, a majority of which — Rs 14.66

billion -- would go to the government.

Second dividend

This is the second time this year that VSNL has announced a hefty dividend --

in July it announced a dividend of Rs 50 per share including a special dividend

of Rs 40.

"It makes sense for everybody. The government is happy, ordinary

shareholders are happy and so is the buyer as it will have to shell out that

much less," said an analyst with a foreign brokerage. In any case, analysts

said, the government would find it difficult to justify selling the company

along with its cash for fear of drawing protests from groups opposed to its

privatization plans. Also the finance ministry trying as it is to battle a

burgeoning fiscal deficit, would be loath to let go of this money, they said.

VSNL is slated to lose its monopoly over the overseas calls business next

April 1, when the government has promised to throw open the business to

unlimited private competition. Two of India's biggest conglomerates, the

Reliance and Tatas, and a consortium comprising unlisted Indian company Sterling

Ltd. and two US-based firms, TyCom Ltd. and Century Tel, are in the race to win

control of the company.

(Additional reporting by Rosemary Arackaparambil in Mumbai)

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