VSNL investors land Rs 6.5k-cr windfall

Tata Comm scrip hits a 52-week high with Cabinet clearing demerger of VSNL land.

Written by Devangi Gandhi | Mumbai | Published: July 21, 2012 10:15:23 am

The Tata Communications (formerly VSNL) scrip hit a 52-week high with the Cabinet clearing the demerger of 773 acres of VSNL land into a special purpose vehicle (SPV) on Thursday. With the land conservatively valued at about R6,500 crore (some analysts even talk of R8,000 crore),this means a windfall bonanza of over R3,300 crore for the government,which held 51% of VSNL’s shares prior to selling 25% of the company’s equity to the Tatas in 2002. Even shareholders who sold off VSNL shares in 2002 — 20% of VSNL’s equity was mopped up by the Tatas in an open offer during the VSNL privatisation phase in 2002 — stand to gain R1,500 crore when the land is finally disposed of. The balance will be given to current VSNL shareholders.

Since the company has 28.5 crore shares,this means a gain of R228 per share based on a R6,500-crore valuation — the Tatas had valued the land at R6,156 crore in 2011. There is,however,no clarity on how soon the land will be sold off,so the actual payout could be years away.

According to the Cabinet\’s demerger plan,the government will hold 51.12% of Hemisphere Properties India Limited,the SPV to which the 773 acres of land spread across five locations in Delhi,Kolkata,Chennai and Pune will be transferred. Around 70 acres of this is in south Delhi’s tony Greater Kailash area.

While Tata Communications does not get any part of the land value — this was part of the 2002 privatisation agreement — it shares rose as the demerger clears the path for the company\’s plan to raise up to $600 million worth of equity over the next three years. That,in turn,will help the company reduce its excessive leverage – right now,with debt at Rs 9,975 crore,the debt-to-Ebitda ratio is well over 3. Since the government did not allow Tata Communications to dilute equity in the last decade,all expansion has been funded through either debt or internal accruals. In the quarter ended March,the company reported a net loss of Rs 260 crore,dragged down by exceptionals totalling Rs 100 crore,primarily due to actuarial loss on pension.

In Friday\’s intra-day session the stock gained as much as 7% and touched its 52-week high of Rs 264.05 before ending the session at Rs 260,up 5.9%.

AK Prabhakar,senior vice-president (research) at Anand Rathi Financial Services,said: “While there are possibilities like listing the hived-off company and distributing the proceeds though this listed entity,an auction route appears more practical with the payoff distributed as dividend to the current shareholders.”

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