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Global Tele to divest holding in Global Electronic - Views on News from Equitymaster
 
 
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  • Mar 8, 2000

    Global Tele to divest holding in Global Electronic

    According to newspaper reports, Global Tele-Systems Limited has decided to divest its entire stake in Global Electronic Commerce Services (GECS). Earlier the company had divested a 1.26% stake for Rs 500 m to Morgan Stanley.

    The company’s decision to sell its stake in the group company will result in an inflow of funds in excess of Rs 4 - 5 bn. This inflow can then be utilised by Global Tele to redeem its long-term debt, which in FY99 stood at Rs 1.8 bn. Moreover, this could provide funding for the company’s recent thrust into software and e-commerce related activities.

    The rationale for Global Tele selling its stake is ambiguous. The management has stated that the company holding was only a minority stake in GECS and therefore it lacked control. However, this explanation does not seem complete especially in view of GECS’s business that has an ATM frame relay network spanning 13 cities. This enables over 8,000 corporate customers to conduct their e–commerce business round the clock.

    In view of Global Tele’s Internet ambitions, a merger rather than a disinvestment may have made sense. This is because Global Tele is also in the process of setting up a payment gateway for e-commerce. The company would have benefited from the client base and infrastructure of GECS.

    Market View:
    Global Tele has been rated as a ‘BUY’ by analysts mainly on account of the company’s attempts to reorient itself into a solution provider in areas of telecom, software and e-commerce.

     

     

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