Mahanagar Telephone Nigam Ltd and Bharat Sanchar Nigam Ltd's announcement that they would buy a stake in Kuwait-based Zain Telecom marked a reversal of a decision by a joint committee of officials on September 1 to reject the $13.7 billion proposal.
On October 3, however, the management of both the state-owned telcos wrote a joint letter to Delhi-based Vavasi group, expressing their keenness to take a majority stake in a joint special purpose vehicle that would buy 46 per cent in Zain, along with Malaysian billionaire Al Bukhary. The proposal was endorsed by Communications Minister A Raja.
The September 1 meeting was the third to assess the project, codenamed Zulu, based on financial documents submitted by Vavasi Telegence Ltd. The committee then expressed the opinion that VTL's proposal did not "merit consideration".
This was because VTL's own numbers for 2007-8 showed a share capital of Rs 0.05 crore, a loss of Rs 8.87 crore (Rs 88.7 million), a negative net worth of Rs 8.65 crore (Rs 86.5 million) and a capital reserve of Rs 140.05 crore (Rs 1.4 billion) that had been created by revaluing land and buildings that, in turn, had been sold to a wholly-owned subsidiary.
The committee noted that the balance sheet contains only "other income" of Rs 390,000 with just Rs 2,710 under the head "income" for the year ending March 31.
A senior VTL executive said: "Yes, our share capital is low because VTL is an R&D company, so it has only expenditure and makes no profit." He, however, declined to discuss the committee's rejection of their proposal in the meeting.
Asked about the change of decision, BSNL chairman Kuldeep Goyal said: "The committee may have taken a decision and changed it later after more information was given. We have no political pressure to do the deal."
In its second meeting on August 28, at which Vavasi group chairman Farid Arifuddin was also present, VTL's managing director informed the committee that he had handed over the documents on the company's performance and the exclusive agreement with the Kharafi family, which holds over 32 per cent in Zain.
Zain Telecom will be the first overseas foray by MTNL, which provides services in Mumbai and Delhi, and BSNL, which provides services to the rest of India. Both companies have been steadily losing market share in India with the entry of private players in mobile services, the faster-growing segment of the telecom market. BSNL and MTNL have a a joint share of 14-15 per cent in the mobile telephony market.
Both companies would be competing against Bharti, India's largest telecom company, and Essar, which is a partner in Essar-Vodafone, India's fourth largest mobile service provider, in the race for Zain.
Zain Telecom is the new jewel in the crown in the African market, with over 69 million customers and operations in 24 countries across West Asia and Africa.
