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Centre contemplates 10% disinvestment in VSNL, MTNL - Views on News from Equitymaster
 
 
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  • Mar 8, 2000

    Centre contemplates 10% disinvestment in VSNL, MTNL

    According to newspaper reports, the government is contemplating a move to disinvest 10% of its holding in both Videsh Sanchar Nigam Limited (VSNL) and Mahanagar Telephone Nigam Limited (MTNL). The move is aimed at raising revenue from disinvestment in an attempt to cap the incessant growth in the fiscal deficit.

    The government’s stake currently stands at 52.9% in VSNL and 56% in MTNL. The speculation that the stake would be sold to an Indian company arises from the fact that as per existing law, Indian equity in telecom and Internet ventures cannot dip below 51%.

    The government's decision to lower its stake in these ventures is a step in the right direction. Moreover, given the timing, the government would be able to realise a good price for its holdings. In view of the rising competition in domestic markets, and the dilution of VSNL’s monopoly in 2002, it seems logical for the government to exit in the near future. Most importantly, the government needs funds to cap the fiscal deficit, which is likely to grow to 5.6% of GDP in FY00.

    From the companies’ point of view, they will get a strategic investor, which may give them access to better technology and managerial experience. However, it seems unlikely that any Indian company would at this point be able to make a significant technological contribution to either of these two companies.

     

     

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