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Wednesday, Feb 06, 2002

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Disinvestment in higher gear

THE SUCCESSFUL COMPLETION of the strategic sale process in IBP and Videsh Sanchar Nigam Ltd.(VSNL) confirms that the disinvestment programme has moved into a higher gear. The significance of the sale lies not so much in the resources generated as in its transparency, market-friendly approach and for setting a healthy precedent for the many big-ticket sales on the agenda. The success of the process is borne out by the excellent price the Government has extracted for its holdings in the two PSUs. The Rs 1,551.25 per share of IBP quoted by the successful bidder, Indian Oil Corporation (IOC), is about 80 per cent higher than the latest market price of Rs 859.70. Similarly, the successful bid of the Tatas for VSNL is at a 20 per cent premium to the market price of Rs 168 per share.

Thesuccess is qualified, of course, by the hand-over of IBP to IOC, another public sector company, prompting criticism that this is not privatisation in the real sense. The Government, say the critics, is merely transferring its stake from one hand to the other. While this may be true, the fact remains that IOC had to bid in competition with private players and got no preference whatsoever by virtue of its being a government company. It would be unfair at this moment to cast aspersions on the deal after IOC came through the bidding process like any other private player, and especially as it has outbid the second highest bidder by a long chalk. By announcing that IOC will be kept out of the privatisation process for Bharat Petroleum and Hindustan Petroleum, which are to be taken up next, the Government has also acted quickly to ward off any criticism that the divestment of IBP to IOC is the first step in creating a monopoly in the oil sector.

For IOC, the acquisition of IBP is a major market move. IBP's strong presence in the northern and eastern regions would complement the existing marketing reach of IOC and add significantly to its current share which is a little more than half of the entire market. More significant is the fact that IOC has now denied strategic space to Bharat Petroleum and Hindustan Petroleum to expand their presence, and to Reliance from gaining a foothold in the retail segment. Though the stock market has signified its approval by marking up the IOC stock significantly on Tuesday, once the dust settles down, questions are bound to be raised if IOC overpaid for the acquisition. If IOC were to make an open offer for a minimum 20 per cent to the other shareholders (which is a possibility), it would mean a further outflow of about Rs 700 crore in addition to the Rs 1,153.68 crore already paid by it to the government now. Of course, given its strong cash flows, money may not be a big problem for IOC.

As for the VSNL deal, it is win-win for both the Tatas and the Government. For the Government, it adds nearly Rs 1,439 crore to its disinvestment kitty while for the Tatas it is a precursor to its having its footprint across the entire telecom value chain. The acquisition of VSNL makes eminent commercial sense for the Tatas, aspiring to enter national long distance telephony.

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