TCIL’s Call Put On Hold

objected to TCIL’s move to sell its stake in
Bharti Hexacom
(Pic by Bivash Banerjee)

The tug of war between the government and the Bharti group over the sale of Telecommunications Consultants India (TCIL)’s stake in Bharti Hexacom (BHL) has taken a new turn with the finance ministry joining the issue. The finance ministry has raised reservations about the communications & IT ministry’s move to sell 30 per cent stake held by government-owned TCIL in BHL, a joint venture company with Bharti Televentures, which was later renamed Bharti Airtel.

The matter, scheduled to be discussed at the Cabinet Committee on Economic Affairs (CCEA) next week, is stuck due to the finance ministry’s objection. “The objections are serious. We have been asked to examine it and expedite it for it to be placed before the Cabinet next week,” says a senior official in the communications ministry on condition of anonymity. “But it is too complicated; we would need more time.”

The finance ministry has sought a detailed clarification on the refusal by Bharti to give dividend to TCIL and list the joint venture company. Bharti Airtel by virtue of the shareholders’ agreement has the right of first refusal. BHL had shown keen interest to take the 30 per cent stake in 2006 and 2007, but it backed off due to the government’s demand for a dividend and listing of the joint venture.

Bharti Hexacom recorded a net profit of Rs 153.10 crore in 2006-07 and Rs 330.67 crore in 2007-08. According to a Department of Telecommunications (DoT) draft note for CCEA, TCIL sought dividends pay out while adopting Annual Accounts every year.

But this was not agreed to by the Bharti Group on the ground that BHL was using all its internal generation for expansion of network to keep pace with intense competition in the market. “It is difficult to accept that all the money is being ploughed back,” says a DoT source. “Most of it is being repaid to Bharti Airtel for a trade credit taken by BHL, while it could have waited in the interest of BHL’s growth.”

A letter written by Bharti Airtel’s group general counsel and company secretary Vijaya Sampath to R.K. Upadyay, chairman and managing director of TCIL on 20 August 2008 stands testimony to the DoT official’s comment. “A loan of approximately Rs 330 crore (including trade credit) from Bharti Airtel is outstanding.” Further, the letter says that TCIL cannot demand dividend since such a provision does not exist in the shareholders’ agreement. Senior DoT officials involved in the discussions have acknowledged Bharti’s stand.

Under such circumstances, the finance ministry has said, “This contention of DoT needs to be examined.” The ministry has sought details of the issue of dividends payout and listing of shares that had been discussed in the board of directors of the joint venture. The relevant record of discussion has been sought by the finance ministry to be placed before them and the CCEA. The finance ministry has also said that, while markets are reeling worldwide from the impact of global meltdown, potential investors /buyers especially in the private sector, would have difficulty in mobilising resources for the purpose. This would impact fair and appropriate valuation of the true worth of equity investment of TCIL in the joint venture.

Questions have also been raised within the government on the DoT’s urgency to push for the divestment when the election model code of conduct has been initiated. Say sources in the communications ministry, “Normally to bypass such complication an in-principle approval is provided. That is likely to happen, if we place it in the Cabinet.” Bharti could use this period to take out additional investment in BHL in form of trade credit. But that’s not a solution that the DoT would be happy with.

(Businessworld Issue Dated 24-30 March 2009)

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