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The government is planning to divest its residual 26.12 per cent equity in the Tata-owned Videsh Sanchar Nigam Ltd, now called Tata Communications.
A meeting of the full Telecom Commission, which includes Finance Secretary D Subbarao and Industry Secretary Ajay Shanker among others, is scheduled in New Delhi on Thursday to consider the move.
It is unlikely, however, that the government will decide to sell its entire residual stake in the stock market before it resolves the issue of the surplus land of around 773 acres that was kept outside the disinvestment process.
The government owns nearly 53 per cent of the land bank and does not want to be reduced to a minority shareholder in VSNL, since this would lower its control and realisation from the eventual sale of the land.
A decision to auction the land bank instead of demerging it into a separate company was taken last December by the Telecom Commission and is pending government approval.
It is therefore likely that the Commission may opt for selling its residual stake in VSNL after the land bank is disposed of.
VSNL was a listed company when the government disinvested 25 per cent of its paid-up equity capital through a strategic sale in February 2002 to the Tata group. This reduced the government's stake to 27.97 per cent, of which 1.85 per cent was sold to VSNL employees. According to the shareholding agreement, the Tatas could exercise a "call" option for the government's residual shareholding, except one "golden" share, anytime between February 13, 2006, and February 12, 2007, at a fair value of the called shares. However, the Tatas did not exercise the option.
The golden share allows the government to appoint one non-retiring director on the Board, and grants it affirmative voting rights on the sale of the land or any change in its use.
The proceeds of the residual stake sale, expected to mop up around Rs 3,650 crore at today's traded value of Rs 491 of the VSNL scrip, will go to the National Investment Fund, which is maintained outside the Consolidated Fund of India.
As much as 75 per cent of the NIF's annual income is aimed at financing social sector schemes such as education, health and employment. The remaining income is used to meet capital investment requirements of profitable and revivable central public sector undertakings.
The move to sell VSNL's residual stake comes at a time when the government requires additional finances for the farm debt waiver package and the impending payout on account of the sixth Pay Commission award.
Finance Minister P Chidambaram has in the past said that tax buoyancy will help the government fund the farm loan waiver.
The Revenue Department's internal estimates for direct tax collections were pegged at about Rs 3,20,000 crore in 2007-08, around Rs 16,000 crore more than the revised estimates for the year. However, actual collections of about Rs 3,12,000 crore are short of the internal target.
