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Lower Tata bid for VSNL seen sequel to new ILD rules

Baburajan K

The Tata group is likely to put in a lower financial bid for Videsh Sanchar Nigam when it puts in its final bid next month following the announcement of new guidelines in international long distance telephony.

The Tata group has already set up an internal team to review its bid. However, a review does not mean the Tatas are willing to withdraw from its bid, but was likely to submit a lower bid price when it puts in the final financial bid, top Tata executives said.

Though Tata executives declined to comment by how much they see a downward revision in VSNL's valuation, analysts said the state-run telecom giant's valuation could drop by anything from 30-40 per cent in the wake of the government accepting the Trai's (Telecom Regulatory Authority of India) recommendations on ILD guidelines.

Analysts said they expected both Reliance and the Tatas, being considered as the two strongest contenders for VSNL, apart from C Sivasankaran's Sterling group, to put in lower financial bids next month. The department of divestment is expected to invite financial bids by the end December.

Tata executives said the group was yet to analyse the implications of the new ILD policy. "We are yet to receive the finer details. So we do not want to comment on the possible impact on our bid," the executives added.

Analysts said the new international long distance policy could open up the Rs 70-80 billion ILD business to a large number of telecom players. This could also see a steep erosion in the value of VSNL, the present monopoly player.

The stock markets have already reacted sharply to the ILD recommendation with the VSNL stock plummeting 10 per cent on Tuesday. Several of the initial bidders have exited, concluding the Aditya Birla group, the Videocon group, the BPL group and the Bhartis.

Senior VSNL executives, when contacted by Business Standard, termed the guidelines as an "unfortunate decision".

VSNL executives said that this will allow small players to take a back-door entry into the ILD business. Against VSNL's suggestions for an entry fee of Rs 5 billion for ILD operators, Trai had recommended an entry of Rs 250 million.

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