BSNL mulls pvt placement as IPO hopes fade

With hopes of raising funds through an initial public offer (IPO) or selling a stake to a strategic investor fading due to stiff opposition from the unions, the government is working on a proposal for a private placement of shares for Bharat Sanchar Nigam Ltd (BSNL), India's fifth-largest telecom company,

The Department of Telecommunications (DoT) is working with the department of disinvestment to privately place 5 to 10 per cent of the state-owned telecom utility's equity.

The decision has also been prompted by the poor retail response to a follow-on offer by state-owned power utility NTPC last week. The retail portion was subscribed just 1.2 times. "Given the market conditions, a private placement would be better than listing the company," a senior DoT ministry official told Business Standard.

A private placement, he added, would also be the best way of discovering the company's valuation, should BSNL be in a position to go for an IPO later. This route would also ensure that the government is able to raise the money that it had expected through the divestment of BSNL.

BSNL's IPO proposal has been pending for almost two years after the cabinet approved a 10 per cent divestment. The proposal was, however, strongly opposed by the unions, which saw it as a conspiracy to privatise the company. Unionised employees account for almost half of BSNL's 350,000 employees.

At that time the company was valued at Rs 100,000 crore, so a 10 per cent stake sale was expected to fetch over Rs 10,000 crore.

The telecom company returned in the divestment list last year, but no deadline was fixed for completing the process.

BSNL is, however, unlikely to fetch its 2007 valuation now. It currently has only a 12 per cent market share and has been losing market share in the wireless market to stiff competition from existing and new private players. A recent tender for equipment to significantly expand GSM mobile services worth Rs 35,000 crore has also been mired in controversy over security issues as well as vigilance enquiries.

Rate wars have also impacted the company. The company saw a steep decline in its net profit from Rs 3,009 crore in 2007-8 to Rs 575 crore in 2008-09. The company may end 2009-10 in the red owing to additional investments, including for 3G spectrum which has already been allocated to it.