Reliance makes open offer for BSES at Rs 234 per share

However, BSES officials were not happy with the offer price. The open offer price of Rs 234 per share set by Reliance for buying a 20 per cent stake of BSES is low and the bid will not be successful, BSES chairman and managing director R V Shahi said on Friday. "This price is low and no body would be interested," he said.

"I haven’t spoken to financial institutions yet but I feel they will not be interested either in offloading even at a higher price. This offer will not get them management control," Shahi said.

Reliance’s open offer is aimed at gaining a controlling stake in one of India’s most profitable private sector power companies. Acquisition of BSES would give a major thrust to Reliance’s ambitions in the power sector which is already setting up a 450 mw power plant in Patalganga in Maharashtra. For Reliance, acquisition of BSES makes strategic sense as the latter has made deep inroads into telecom and fibre optic business through its subsidiary, BSES Telecom.

Financial institutions are the biggest shareholders in BSES with a stake of about 35 per cent. Reliance and its group firms have over the years bought a 14 per cent stake in the firm.

BSES officials say that part of its optic fibre network in Mumbai is ready and the company will have a tie-up with MTNL where it does not have a presence. BSES has also submitted along with National Power Grid of UK a bid for laying optic fibre network along with transmission lines of MSEB.

BSES Telecom is a Category B licensee for providing internet service in Mumbai and it has recently launched its net services in Mumbai branded Power Surf. By the end of first half of 1999-2000, the first phase of the optic fibre network linking all the 45 receiving stations of BSES was completed.

The company is now looking at to build bandwidth, and a fibre optic backbone to make that bandwidth available should be the first priority. This is something which BSES-Telecom already possesses. Basically, the BSES venture into broadband will enable users access to speed up several times.

Besides, BSES Andhra Power which is setting up 210 MW project has tied up funds-debt and equity- and once the escrow is approved, the project will be able to achieve financial closure. BSES Kerala Power has already started generating power. If BSES divests part of its stake in the subsidiaries, a significant portion of the fund requirement for its proposed 495 MW project at Palghar will be met. This will have to wait till the project gets final clearance. Reportedly, BSES has acquired a portal-Indbazaar.com for Rs 40 crore. It makes great synergistic sense for an ISP to have portals as well or in other words to be in content business.

The final decision on the Palghar project is yet to be taken and that defers the possible equity dilution. In one more proposal submitted to the state cabinet, the company has proposed a 2X250 MW coal based unit at Amravati at the capital cost of Rs 2278.21 crore. According to the project note submitted to the state government, the project will be funded through internal accruals. It can be interpreted in only one manner – BSES will divest part of its stake in telecom subsidiary and get it listed. At present, BSES is riding on the valuation of its telecom subsidiary. If the subsidiary gets listed, then the possibilities are endless and this is yet to be reflected in price.

The licensee business of power generation and distribution-is an annuity business and hence the discounting is always low but the telecom subsidiary has changed the picture.