Decision on India VSNL dividend deferred

Umesh Desai

MUMBAI: Shares of state-run overseas telephone monopoly Videsh Sanchar Nigam

Ltd (VSNL) fell on Friday after a much awaited decision on a special dividend

was put off. Officials belonging to VSNL and the Telecoms, Finance and

Disinvestment ministries met earlier on Friday and traders and analysts had

expected the meeting would announce a dividend of Rs 100 per share ahead of its

privatization.

But Pradeep Baijal, the senior official in India's Disinvestment Ministry,

told reporters after the meeting that a decision on the dividend would be taken

in the next 1-2 months, saying there was still no "consensus" on the

issue.

NYSE-listed VSNL, India's largest Internet access provider, is rated as one

of the top priorities for privatization by the government this financial year.

The firm was widely expected to give its shareholders the special

"pre-privatization" dividend out of its reserves of nearly Rs 50

billion.

The government plans to bring its stake down to 26 percent from 52.97 percent

by selling 25 percent along with management control to a strategic partner and

another 1.97 percent to VSNL's employees.

Six bidders including three of India's biggest conglomerates - the Tata,

Birla and Reliance groups - and separate consortiums led by telecoms group

Bharti, BPL and Videocon have expressed interest in acquiring the firm.

Baijal said he expected the decision on the strategic partner to be taken by

August and the transfer of control by December, well before the company loses

its monopoly over the international calls business in April 2002.

Analysts disappointed



But the decision clearly disappointed analysts. "They have disappointed

the market as well and the share is bound to fall further. The only consolation

is that the decision has only been deferred and not abandoned," an analyst

at a European brokerage told Reuters.

Most analysts had expected the plan to win approval as a Rs 100-dividend

would have fetched the government Rs 20.80 billion ($443.17 million) for its

52.97 percent holding of VSNL's Rs 2.85 million equity and in dividend taxes.

Besides cheering the Finance Ministry trying to battle a tough fiscal situation,

it would also have made political sense for a government keen to rebut charges

that it is selling state-run firms too cheaply.

Its sale of profit-making Bharat Aluminium Company (BALCO) for Rs 5.51

billion rupees earlier this year ran into a storm of protests from Opposition

parties and employees who accused the government of selling it for too little.

At Rs 20.8 billion, the amount the government would receive from the VSNL

dividend would be nearly four times the amount it raised from the sale of Balco.

The dividend would have also left other shareholders happy. Nearly 30 percent

of VSNL's Rs 285-million equity is held as American Depositary Receipts. An

additional seven per cent is held by foreign funds while the rest by employees

and public shareholders. For VSNL's nearly 3,000 employees, most of who hold at

least 600 shares, the dividend would have fetched Rs 60,000.

(Additional reporting by Santosh Menon in New Delhi).

(C) Reuters Limited 2001.