India against Modicorp joining VSNL race

NEW DELHI: The government may not allow diversified telecoms firm Modicorp to

enter the race for a controlling stake in state-run telecoms giant VSNL because

it is past the deadline to join the bidding, an official said.

Last week, Modicorp, a flagship of the B K Modi business family, said it

wanted to join the race for Videsh Sanchar Nigam Ltd., whose privatization has

entered its last lap with price bids expected to be called in the last week of

January.

Modicorp, which runs cellular networks, chose not to bid when the deadline

for submitting preliminary bids ended in April, but the company now wants to

join the race, saying the bidding environment had undergone a major change.

VSNL, a monopoly overseas calls carrier, has announced a hefty 750 per cent

dividend to distribute its huge cash reserves before its sale and the government

plans to demerge the company's land assets, which Modicorp says makes the

bidding "affordable".

But a government official, who asked not to be identified, told Reuters on

Friday allowing Modicorp to join the race so late in the privatization process

would be difficult as it could upset existing bidders. "It will be unfair

to those players who have been at it for so long. The government will also find

it hard to explain a mid-course change in rules in court," the official

said.

Disinvestment minister Arun Shourie said Modicorp's request was being

examined by his ministry. "Usually, when late entrants want to join the

race, the best thing to do would be to come in as part of any existing bidding

consortium," Shourie said. Officials said allowing Modicorp at this stage

could also lead to similar demands from other firms that could complicate and

delay the privatization.

The Economic Times newspaper on Friday reported that another private firm,

BPL Communications, which had pulled out of the bidding two months ago, was keen

to re-enter the race. Six bidders had originally shown interest in VSNL, but the

number is now down to three. These include two of India's biggest industrial

groups, Tata and Reliance, and a consortium comprising local firm Sterling Ltd.

and two US firms TyCom Ltd. and Century Tel.

The government plans to lower its stake in the New York Stock Exchange-listed

VSNL to 26 per cent from 52.97 per cent by selling 25 per cent along with

management control to a strategic partner and another 1.97 per cent to VSNL's

employees. The privatization of VSNL is billed as the government's most

ambitious selloff in a decade of economic reforms.

© Reuters Limited.