Search the Internet          Tips  Sites: Finance, Investment

VSNL sets special dividend before selloff

Indian state-run telecoms giant VSNL said on Friday its board had recommended a special interim dividend of Rs 75 per share in a bid to distribute a large cash surplus ahead of its planned privatisation.

The New York Stock Exchange-listed Videsh Sanchar Nigam Ltd is a monopoly overseas telecommunications carrier and also India's biggest Internet access provider.

India's privatisation minister had said last month that VSNL, one of India's most cash-rich companies, was sitting on a cash pile worth Rs 40-45 billion, which the government planned to distribute to shareholders before its sale.

The government, which holds a 52.97 per cent stake in VSNL, plans to lower its stake to 26 per cent by selling a 25 per cent stake along with management control to a strategic partner and another 1.97 per cent to the company's employees.

The privatisation, billed as India's most ambitious yet in a decade of economic reforms, has entered its last lap with the government expected to call for price bids from suitors in the last week of December. The sale is expected to be wrapped up latest by January.

"Taking into account the investment plans of the company and expected profit, the board felt that no serious financial problems are anticipated if the government of India proposal of a special interim dividend of 750 per cent is accepted," the company said in a statement to the Bombay Stock Exchange.

A VSNL official said the dividend payout was subject to some clearances as existing rules did not allow any company to pay dividend in excess of its current year's profits.

VSNL's net profit at end of the first half ended September stood at Rs 7.34 billion, but the company is not expected to face any problems on this count as the biggest beneficiary of the dividend is the government itself.

A 750 per cent dividend along with a 10.2 per cent tax on it would mean a total payout of Rs 23.56 billion for VSNL, a majority of which -- Rs 14.66 billion -- would go to the government.

Shares in VSNL closed 1.36 per cent higher at Rs 238, off highs of Rs 246.75, on the Bombay exchange whose 30-share benchmark index ended down 1.03 per cent.

SECOND DIVIDEND

This is the second time this year that VSNL has announced a hefty dividend -- in July it announced a dividend of Rs 50 per share including a special dividend of Rs 40.

"It makes sense for everybody. The government is happy, ordinary shareholders are happy and so is the buyer as it will have to shell out that much less," said an analyst with a foreign brokerage.

In any case, analysts said, the government would find it difficult to justify selling the company along with its cash for fear of drawing protests from groups opposed to its privatisation plans.

Also the finance ministry, trying as it is to battle a burgeoning fiscal deficit, would be loath to let go of this money, they said.

VSNL is slated to lose its monopoly over the overseas calls business on April 1, 2002, when the government has promised to throw open the business to unlimited private competition.

Two of India's biggest conglomerates, the Reliance and Tatas, and a consortium comprising unlisted Indian company Sterling Ltd and two US-based firms, TyCom Ltd and Century Tel, are in the race to win control of the company.

ALSO READ:
The Divestment Development