A Tightrope Walk?

The above numbers, written in any order, spell success at the stock markets. And yet, the VSNL scrip is hardly being traded in, and its price, is dropping "" from Rs 1,450 in the beginning of May, it was last traded at Rs 1,150 at the end of August. So even as the company pulls in record performances and is on the fast track to growth as a monopoly licensee to the international telecommunication services in India; the markets are giving it the cold shoulder. And, typically, as the VSNL chieftains and the ministry of communications cross swords over a money raising plan, the cost of future expansions is rising.

 

At the heart of the controversy is a $400 million global depository receipt (GDR) that the company has been planning to float. This is part of an overall divestment plan that is on the anvil for the public sector unit. According to the proposal placed by the core group on disinvestment to the Union cabinet, a dilution of 7.6 per cent of equity by the government in VSNL (from the existing 82.15 per cent) is due this year. The divestment will take place alongwith an overall resource generating drive by the company to fund its domestic expansion plans. VSNL has said that it would need a total close to $1,100 million for its expansion plans at home "" of this around $700 million is to be raised internally and the rest, from the GDR.

The money raised is to be used for spreading the corporation's domestic network. The main project is its Intelsat Standard A earth stations at Halisahar and Korattur in Madras. What this is meant to do is provide direct satellite access to the Eastern and Southern regions of the country.

Interestingly, there has never been any controversy over the VSNL expansion plans or the money it would need for the same. Only over how it should raise the vast amount. Under Sukh Ram, the ministry raised a ruckus over the pricing of the GDR issue. Its lead managers "" Jardine Fleming, Kleinwort Benson and Salomon Brothers "" had to call off the initial offering of $1 billion at the last minute because the politicians reigning over the ministry at the time believed that the issue was not priced correctly. Says one of the lead managers for the GDR offering, if VSNL had been allowed to raise the funds two years back, assuming a 15 per cent interest rate, it would have had Rs 1,200 crore in its kitty by now. "The company would have cut its costs on borrowings and crucially, the value of the government holding would have increased. It would have enhanced wealth creation", he says.

More recently, the company and its lead managers worked out a fresh fund raising plan and have asked for permission to hit the international markets by the end of the year. Even this proposal is stuck because the new government has ordered a relook into the awarding of the contracts for the VSNL issue "" their contention is that under the previous minister, there is a possibility that the bids were not chosen on merit. The VSNL chairman and managing director, B K Syngal, who was recently in New Delhi in connection with a series of talks with the finance and telecom ministries, is tightlipped on the entire issue. He says: "I would prefer not to react to any matter concerning the disinvestment plan and the VSNL clearance proposal....the issue is much too sensitive at the moment."

Sadly so. For this is precisely why the company's potential as a money spinner in the coming decade or so, is still only a paper proposal. This is also why, the rise in volume of business from 942 million paid minutes in 1994-95 to 1,147.56 million paid minutes in 1995-96 and an impressive financial results have gone largely unnoticed. Amidst these controversies, the VSNL stock price at the local markets has continued to dip due to selling pressure. VSNL remains a highly illiquid stock at both the major bourses, National Stock Exchange and the Bombay Stock Exchange.

Let us see if this is entirely justified.

According to a detailed study on the telecom industry by Jardine Fleming, the new government is likely to remain protective towards VSNL's existing monopoly on India's international voice and data traffic. The monopoly is set to remain secure until 2004. VSNL currently supports direct dialing telephone services to 236 countries worldwide through its network of submarine cables and satellite links. Even if the monopoly is relaxed early, FIIs argue that the competitive threat will be limited. The company has signed a construction and maintenance agreement for the fibre optic link around the Globe (FLAG) "" the longest cable in the world running through Europe and the Far-East. To enable mobile communication through handled telephone throughout the world, VSNL has also bid for the location of Satellite Access Nodes for this system in India.

More reason for optimism, according to analysts with Morgan Stanley, Hong Kong is that when the Indian government does readjust its international telecom fee structures, the move would benefit VSNL. In a report on the global telecom business, the FII has said that although any such move will immediately lead to a drop in revenue from IDD charges by 30-40 per cent from current levels, this will be more than offset by concomitant adjustments to interconnection fees. And, "should the new regulatory authority bring Indian IDD pricing more in line with global norms, while reducing VSNL's interconnection charges, we believe that the company could be worth over Rs 2,000 "" almost double the price the company currently trades at.

This is reason enough for cheer. Still, the markets are not biting. This is because, as most marketmenis seeming increasingly remote, VSNL's worst nightmares are cutting into its daydreams.å