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Abhrajit Gangopadhyay
C. Shivkumar

BANGALORE, March 31

THE Union Government has dropped state-owned telecom equipment manufacturer ITI Ltd from its list of possible divestment targets "due to strategic reasons", company sources have said. "There will be no further divestment of existing equity in favour of specific private players," they added.

Buoyed by divestment hopes, the ITI stock gained 26.27 per cent during March. The scrip shot up to Rs 20.25 on the Bombay Stock Exchange on 28 March, up Rs 4.20 from Rs 16.05 as on March 1. The company currently had an order book valued at Rs 1,500 crore, the sources said.

According to analysts, the next triggers for ITI's bull-run could be new revenue streams and business visibility.

The Government had earlier divested 23 per cent equity shares of ITI in favour of financial institutions, banks, mutual funds and employees. However, further disinvestment in favour of a single or consortium of private players was dropped in the light of "strategic" initiatives, the sources said.

Moreover, most of the telecom bids for the Indian defence sector are won by ITI and the Government's decision to keep private players away from ITI was seen as a "security concern", the sources said.

Ruling out ITI's divestment would also prevent cartelisation in certain bids by private players, they added. Such a move follows ITI's decision to issue preferential shares to Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL). With other State-owned telecom service providers picking up equity stake in ITI, there was a bid to create a "seamless service interface" to cope with the zero-duty regime, the sources said. The preferential allotments imply a technical dilution in the Government's stake in ITI, since both BSNL and MTNL are functioning as separate public sector firms.

MTNL plans to invest Rs 300 crore in the form of seven-year preference shares carrying a dividend rate of 8.75 per cent per annum. BSNL is likely to invest "substantially higher" than what MTNL has offered and talks on the issue are on. Some of the preference share proceeds would be used to retire part of high-cost debt and consequently bring down the finance cost.

ITI has a paid-up equity base of Rs 88 crore and authorised capital base of Rs 100 crore.

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