LIC wants to exit MTNL via pvt placement

The Life Insurance Corporation (LIC) of India wants to divest its 18.81 per cent stake in state-owned Mahanagar Telephone Nigam Ltd (MTNL) through private placement of shares.

Top sources privy to the discussions say LIC has discussed the issue with the government, which has a controlling stake of 56.25 per cent in the company that runs fixed as well as mobile services in Mumbai and Delhi.

LIC sources say since the shares of MTNL are now quoted much below the price at which the insurer bought these, the best option is private placement to a strategic investor. Based on on Wednesday ’s close of Rs 30.35 a share, the value of LIC’s shares is around Rs 360 crore. If the insurer exits at this price, it will end with a loss of Rs 750 crore, as the shares were bought when MTNL was trading at Rs 92 a share. Only a private placement will enable LIC to cut its losses, the sources say.

An LIC spokesperson declined to comment on the issue.

A strategic investor could increase its stake in MTNL later by picking up smaller stakes held by foreign institutional investors, corporates and banks and from the market.

Private telcos had earlier shown interest in picking up a strategic stake in MTNL for many reasons: the company is rich in spectrum and operates in the two most lucrative markets for telecom in the country. It has more than 12.4 MHz of 2G spectrum, which no other private player has in these spectrum-starved cities. It also has 20 MHz of valuable broadband wireless spectrum, which it plans to offer on franchise basis in Delhi and Mumbai and, of course, 3G spectrum in the same cities. And, it has some lucrative real estate.

Two, many new operators which have got into 4G for data services do not have either 2G or 3G spectrum and a voice option for their customers. A strategic stake in MTNL could help them not only in getting ready customers for 4G, but also enable them to offer subscribers seamless voice services on 2G and 3G, as well as 4G.

The government, however, has been treading cautiously on privatising  MTNL due to stiff opposition from unions, though discussions on divesting the government stake in MTNL have been going on for over a decade.

With around 5.6 million mobile customers in Delhi and Mumbai, MTNL has a minor 0.64 per cent of the mobile market. In wireline, it controls over 10.57 per cent of the Indian market, but it is a business whose growth rate has been declining. In Delhi, it is only the seventh largest mobile player with less than seven per market share. In Mumbai, it controls less than eight per cent of the mobile market and is seventh in the pecking order.

Confronted with cut-throat competition from private players and unable to expand as fast as its competitors, MTNL has been in financial stress with its losses increasing to Rs 929 crore in the quarter ended December 2011.