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DoT may demerge surplus VSNL land into a new co

Telecom Commission decision likely on Aug 26.


Options on hand

To hive off the surplus land into a realty company,

Allow the Tatas to retain the land at a fair consideration, or

Auction the land to a third party.


Thomas K. Thomas

New Delhi, Aug. 12 The Telecom Commission will decide on August 26 on the seven-year-old spat between the Government and Tata Group over hiving off Videsh Sanchar Nigam Ltd’s (now called Tata Communications) surplus land into a separate company.

The Commission, which is the apex decision making body in the Department of Telecom comprising representative from the Ministry of Finance, has three options to deal with 773 acres located in four cities. The options are to hive off the surplus land into a realty company, allow the Tatas to retain the land at a ‘fair consideration’, or auction the land to a third party.

While divesting its equity stake in VSNL in 2002, the Government decided to keep out 773 acres of surplus land owned by the company out of the sale deal entered into with the Tata Group. As part of the agreement, the strategic partner (the Tatas) was supposed to facilitate the process. However, the process hit rough weather with Tatas raising a number of issues, including clarity on who will bear the cost of creating the new company.

Once the DoT decides on what to do with the land, the proposal will be taken to the Cabinet Committee on Economic Affairs for approval. According to DoT officials, it may decide to go with the first option, which is to demerge the land into a separate company, and then sell it to a private developer.

Due diligence

But, according to the former Chairman of VSNL, Mr B.K. Syngal, the Government should do a complete due diligence of the assets-owned by VSNL, including the land which has not been included in the proposed demerger plan.

“The Government should first ascertain the exact amount of land because there are tracts of real estate beyond the 773 acres, not being put to any specific use by the acquirer. Once that is done then the DoT should fix the value of the land, according to current market rate. If the Tatas want to buy the land at market rate then it can be given to them. But it should not be given on a platter to anyone.” By Mr Syngal’s estimation, VSNL’s surplus land should be double of what is being considered at present.

The Tatas had earlier expressed reservation against demerging the surplus land under the Companies Act 1956, and had instead, proposed to form a new real estate company called Hemisphere, to be jointly owned and commercially developed with the Government’s participation.

De-merger

According to the shareholders’ agreement between the Government and the Tata group, post- disinvestment VSNL was to be de-merged into two companies. One was to be the telecom company under the control of Tatas, and the second a government-controlled company to administer the land. The second part of the agreement, related to the surplus land, is yet to be executed. The Tatas had refused to bear the cost of hiving off the land into a separate company.

If the Commission manages to arrive at a decision on this issue, DoT will be able to move ahead with its proposal to divest the Government’s remaining 26 per cent stake in Tata Communication.

The Tata Group had expressed its desire to make further investments through Tata Communications. This would require a proportionate investment from the Government since it holds around 26 per cent in the company.

In order to give the Tatas a free hand in taking investment decisions, the DoT proposed to sell the residual stake. However, this will have to wait till the issue of surplus land is resolved.

Related Stories:
DoT wants VSNL's land hived off as per Cos Act
VSNL residual stake sale hits snag — Govt may put off divestment as Rs 1000-cr land issue hangs in mid air
Surplus land demerger: VSNL board to meet

More Stories on : Telecommunications | Outlook | Restructuring | Tata Communications Ltd | Real Estate & Construction

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