VSNL GDR issue elicits poor response

Rumours of a below average response to the VSNL disinvestment continued to fly thick with two days to go for the pricing of the issue to be announced. Unconfirmed reports from overseas suggested that the company has abandoned its domestic book building exercise and has been able to receive bids worth 70 million so far from overseas investors.

An official close to Indian lead manager, Kotak Mahindra denied that the domesticbook had been called off. He said that certain offers were trickling in.

Market sources said that news coming in from abroad where the roadshows are now in their final stages indicated that the company has so far received bids only to the tune of 70 million as against a targeted 400 million.

quot;With two days to go for issue to close people are expecting the company to end up with a collection of about 120-140 million, which would be way below the expectation. The price band between which bids are being received is 9-10 per GDR,quot; said a market source, quoting reports emanating from his foreign office.

None of these reports could be verified as the entire VSNL top brass, involved with the GDR issue, is out of the country. Attempts to contact acting chairman-cum-managing director Amitabh Kumar proved futile.

GAIL shares on Monday dipped even below the battered-down placement price of the share at Rs 60 per share last week. Gail share price closed at Rs 58.70 after touching a low of Rs 58.15 at theBombay Stock Exchange. The scrip has witnessed a steady fall since May, 1998 from Rs 124 levels.

In fact, the GAIL scenario, where as many as eight million shares have remained unsubscribed, would be the worst case scenario for VSNL. According to market watchers, demand for the GAIL scrip is completely dead because the downstream units have already been discounted by the market, and even after that the shares have remained unsubscribed.

Market players said that recent policy initiatives by the government particularly that of asking PSUs to go in for cross holdings has not gone down to well with investors.

In the specific case of VSNL, it is felt that confusion over the ability of VSNL to remain a monopoly till the year 2004, has cast doubts on the financial health of the quot;navratnaquot;.

The government is disinvesting 11 million shares through its offering split between a domestic and a GDR issue. The GDR issue accounts for 10 million shares being offloaded. A simultaneous book building exercise has beenlaunched. The lead managers for the foreign offering are CS First Boston and Salomon Brothers, while the domestic issue is being lead managed by Kotak Mahindra and SBI Capital Markets.

The recent GAIL disinvestment set the tone for the government8217;s disinvestment programme for VSNL and will do the same for IOC as well. The problem lies in the perception of PSU stocks amongst domestic and foreign investors, thanks to the disinvestment through cross-holdings policy.

The trend in domestic stock prices provided an indication of how the disinvestment would proceed. For the last couple of months these otherwise sound PSU stocks in telecom, refining and energy sectors have been underperforming the market indices; even under positive circumstances such as was seen during January 1999. It is therefore not surprising that foreign investors are not in favour of investing in PSUs at this juncture. It is increasingly being seen that the disinvestment price is becoming the ceiling price for these stocks.