Search the Internet          Tips  Sites: Finance, Investment

VSNL reviewing investment in Tata arm

Indian telecom giant VSNL, in which the powerful Tata group recently bought a controlling stake from the government, is reviewing a controversial plan to invest in another Tata firm, an industry source told Reuters on Wednesday.

Videsh Sanchar Nigam Ltd, under pressure from India's telecom ministry not to invest in unlisted Tata Teleservices, is considering alternative investment options and will come to a decision by July 15, said the source, who declined to be identified.

VSNL announced on May 28 that it would invest up to Rs 12 billion in the equity of fixed-line phone company Tata Teleservices, drawing flak from Communications Minister Pramod Mahajan, who said the decision was wrong and must be reviewed.

The source told Reuters VSNL Chairman S K Gupta had written to D P S Seth, a senior official at the department of telecom, saying a committee of the VSNL board had been asked to look at "additional investment opportunities".

"Should these deliberations identify an option or options that are quantifiably better than the proposal approved by the board, the committee should place these before the board for its consideration," the letter said, according to the source.

But it added that if the committee was "unable to identify and quantify a more attractive investment option", the committee's mandate would be to implement the board decision of May 28.

The committee's original terms of reference were to decide the amount and periodicity of investments in Tata Teleservices, to protect VSNL's interests in the investment and to oversee the way Tata Teleservices utilises the investment.

Standoff

Mahajan told a news conference last week he hoped VSNL would reconsider the investment.

"In the garb of strengthening VSNL you (Tatas) are strengthening Tata Teleservices," he said.

Mahajan said the options open to the government included board-level opposition, legal recourse and exercising its power not merely as a shareholder but as the government of the country.

New York Stock Exchange-listed VSNL has justified the investment, saying it needed a partner in fixed-line services. It is not allowed to offer fixed-line services because the rules do not allow companies with a government stake of more than 10 percent to enter the segment.

Tata Teleservices has about 150,000 subscribers in Andhra Pradesh and licenses to operate in five more states.

India's Divestment Minister Arun Shourie on Tuesday cautioned the row could hurt sentiment towards further sell-offs of state-run companies.

VSNL shares were down 5.15 per cent at Rs 173.10 on the Bombay Stock Exchange, whose benchmark index - the Sensex - was up 2.2 per cent.

ALSO READ:
VSNL relents, may invest elsewhere
Tatas may give up 25% in VSNL realty
VSNL may have to seek security clearance
IGF moves DCA over VSNL-Tata Tele deal
The Rediff Budget Special
Money

Tell us what you think of this report