VSNL may not get to develop real estate

The department of telecommunications has rejected VSNL's proposal to jointly undertake commercial development of 773 acres of land owned by the company and share the revenues.

Instead, the DoT has decided to stick to the original agreement at the time of VSNL's disinvestment to demerge the land into a separate company.

In addition, the DoT wants to explore the option of selling this land subsequently in order to gain from the unprecedented appreciation in land prices in the country.

If the demerger happens, VSNL should not be made to bear the stamp duty as it would derive no benefits from it, sources in the company told Business Standard.

The company has also raised concerns about the interests of its ADR holders as the de-merged entity is unlikely to be listed on the stock markets.

A Cabinet note on the de-merger is slated to be circulated to various ministries during the week. "The note is currently being finalised by an internal committee of the DoT, which was set up last year to work out the modalities of the de-merger. Following this, the issue would be taken up by the Cabinet," government sources added.

The sources also added the decision to move the Cabinet was designed to ensure that the process of demerger was completed at the earliest, especially since the call option period had already begun" according to the shareholder's agreement, the Tatas can buy the government's 26 per cent stake between February 13, 2006 and February 12, 2007.

This implies that if the Tatas were to exercise this option at present, the government will have to sell its residual 26 per cent stake. In such a scenario, the government will also lose control of the 773 acres of prime land across various cities.

At the time of VSNL's divestment in 2002, its land was estimated to be worth Rs Rs 1,000 crore. Benchmarked against recent land deals in Mumbai, Delhi and elsewhere, VSNL's realty assets may well be worth well over Rs 3,000 crore now.