BSNL baulks at Zain splurge

BSNL baulks at Zain splurge

New Delhi: Bharat Sanchar Nigam Ltd (BSNL) may not want to pick up a stake in Kuwait’s Zain Telecom because it wants to hold on to its cash to maintain interest earnings, and pay for third-generation, or 3G, spectrum and an ongoing restructuring programme critical for long-term profitability, said a top company official.

The Indian state-owned phone firm has been offered a stake in Kuwait’s largest telecom provider as part of a consortium of investors led by the Vavasi Group. The controlling 46% stake is worth a total $13.7 billion (Rs66,719 crore), Bader Al-Kharafi, a top executive of Kuwait’s Al-Kharafi Group, the largest private shareholder in Zain, told reporters at a press conference late on 9 September in the Arab nation.

“We are not very enthusiastic about this offer at present," said the official, who didn’t want to be identified, given the stage at which the proposal is poised.

BSNL, which provides nationwide services except in Delhi and Mumbai, has around Rs35,000 crore of cash, which may not stretch to cover its share of the Zain stake purchase, the official said. Apart from BSNL, the other members of the consortium are Mahanagar Telephone Nigam Ltd and Malaysia-based billionaire Syed Mokhtar Al-Bukhary.

BSNL, which had flat growth last fiscal and was overtaken by Bharti Airtel Ltd in terms of revenue in the last fiscal year, is looking to improve its sluggish performance. The telco is in the process of implementing changes recommended by The Boston Consulting Group (BCG) earlier this year.

BSNL hired BCG in December to help it compete with private companies such as Bharti Airtel and Vodafone Essar Ltd. Bharti is said to have reached agreement on a $24 billion merger with South Africa’s MTN that will help it diversify operations into countries where margins are better than back home.

BSNL may, however, be prudent to stay away from the Zain stake purchase, an analyst said. “BSNL has a lot of cash on its books but it lacks the ability to execute," said an analyst with the Mumbai branch of an international brokerage firm on condition of anonymity as he is not authorized to speak to the media. “Africa is not a market for an operator to just add some revenue to its balance sheet. They have to first show that they can execute in India with the opportunities already in front of them like broadband and 3G before they can venture into bigger game like Zain," he said.

In the 12 months ended March, BSNL’s revenue fell to just under Rs35,000 crore from Rs38,000 crore in the previous fiscal year. This compares with Bharti Airtel’s Rs37,352 crore for fiscal 2009, up 38.3% from Rs27,000 crore.

BSNL may consider parts of Zain’s business but not the whole, the BSNL official said. “The whole of Zain is not feasible. Maybe we can look at their operations in some countries," he said. “We have to see the overall requirement before we can spend this amount and it’s not just this deal."

BSNL will also have to take into account an increase in its wage bill of about Rs2,000 crore. “This year, our wage bill is going to increase to more than Rs13,000 crore or so from Rs11,000 crore last year. Because of this, revenue earnings will see a little difficulty and new revenue streams will only start bearing fruit in the coming year," the official said. Next year’s wage bill, however, “will come down because there won’t be any arrears".

“The proposal has been received and we have to take a view on that. No view has been finalized on that as yet," said Kuldeep Goyal, BSNL’s chairman and managing director. “They are talking of a very big deal. One party has said that they have an agreement with the largest stakeholder and that party would naturally be looking for and talking with partners who can bring in that money," he added.

BSNL expects it will have to make a substantial payment after the 3G and broadband wireless access auctions. The state-owned telco, which has already been allotted spectrum for these services and has around 54,000 3G subscribers, will have to match the winning bids for the licences that are to be auctioned at the year-end.

“We also have to pay for Wimax, which means a minimum of around Rs6,000 crore, which will be amortized over 10 years, but the cash has to go," Goyal said.

BSNL’s restructuring exercise has been completed at the corporate level and it has started building a new sales and marketing organization, Goyal said. It’s implementing several steps to improve operational efficiency, he said.

Still, the company expects to post flat revenue growth this fiscal, Goyal added.