New Delhi: The government will not sell its stake in Tata Communications Ltd to help the telecom company comply with the capital markets regulator’s minimum public shareholding norm for listed companies before a June deadline.
Listed companies in India that are outside government control need to have a minimum public shareholding of 25% by June, while state-controlled ones need to have at least 10% held by the public by August, according to Securities and Exchange board of India (Sebi) norms.
The department of telecommunications (DoT), which represents the government’s 26% shareholding in Tata Communications, has decided against selling shares in the company as it would affect the sale of the land that is in the process of being hived off from the company, said a senior DoT official, requesting anonymity because of the sensitivity of the matter. The Tata group gained control of the company after it bought a 45% stake in the erstwhile Videsh Sanchar Nigam Ltd (VSNL), for about Rs.1,500 crore, as part of a government asset-sale programme in 2002.
The Tata group bought shares in Videsh Sanchar in two stages, with 25% being acquired directly from the government and an additional 20% from minority shareholders through an open offer. Some 773 acres of prime real estate belonging to VSNL was not part of the transaction. The public shareholding in Tata Communications is now at around 17% with an additional 6.6% being held in the form of American depository receipts.
The telecommunications department had proposed that Tata Telecommunications hive off the surplus land held by VSNL into a separate company and then sell it but differences between the two parties over the process had held up the land sale for more than 10 years.
Since then, the government has initiated the process of setting up a special purpose vehicle (SPV) in which the land will be held and hired consultants to help value and sell the land. DoT has already received approval from the finance ministry to infuse Rs.2.6 crore into the SPV to retain majority control. The Tata group has set up Hemisphere Properties India Ltd with an authorized capital of Rs.25 lakh as an SPV to hold the surplus land.
After the sale, the Tata group will get about 5% of the land sale proceeds corresponding to the 5% additional stake acquired in the past few years from the public. Money from the land sale is primarily expected to go to the government and investors that owned shares in Videsh Sanchar before the asset sale.
The land is spread across prime areas in Delhi, Chennai, Kolkata and Pune, and was last valued at around Rs.6,200 crore in 2009, with stamp duty and registration costs estimated at around Rs.430 crore, according to the government.
The largest chunk of land is in the Dighy area of Pune, while the most valuable parcel is expected to be in Delhi’s Greater Kailash and Chattarpur areas.
Tata Communications has been pushing for the hiving off of the land as it has been unable to raise funds needed for its capital-intensive business. The company has said it will infuse $500-600 million in equity in the company as planned after the surplus land is hived off into a separate unit.