Date:04/04/2004 URL: http://www.thehindubusinessline.com/2004/04/04/stories/2004040401520200.htm

Back VSNL to downsize fixed assets

Our Bureau

Mumbai , April 3

THE shareholders of Videsh Sanchar Nigam Ltd (VSNL) have endorsed a resolution that downsizes the carrying value of fixed assets of the company by Rs 956 crore, this amount to be utilised from the `securities premium account' of the company.

The shareholders also endorsed the renaming of `share premium account' as `securities premium account.'

The balance sheet of the company as on March 31, 2004, will incorporate the above adjustments upon confirmation by the Bombay High Court or other such appropriate authorities, said the annexure to the notice to shareholders.

An analyst said VSNL's balance sheet for the year currently ended would look better than it might have, on account of this move.

It was a "drop dead situation," said Mr Ratan Tata, Chairman of VSNL, in reply to a shareholder's comment that such a large amount being utilised from the shareholders premium account is a retrograde step. "It is akin to cutting off your leg if you have cancer and saving your life." The shareholders premium account as at March 31, 2003, amounted to Rs 1,448 crore.

The financial restructuring is being done in order to remain competitive in an environment in which new players are able to provide services at a lower cost, said the annexure to the notice to shareholders.

The proposed restructuring is expected to reflect the true shareholders' value by appropriately reflecting the future profitability from operations. Further, the right sizing of the balance sheet would result in a more realistic determination of certain key financial ratios such as return on capital employed and return on net worth.

The net worth of the company would be reduced from Rs 5,843 crore to Rs 5,232 crore, while the return on capital employed would increase from 5.13 per cent to 5.73 per cent, said Mr Tata.

According to him, the stock markets have already interpreted the restructuring as a positive move, since the company's share price has increased since the time the board's recommendations on this restructuring became known.

The Tata Group had done the same thing with Telco, with the result that the company has no baggage, added Mr. Tata.

He said that the new accounting standards call for reflecting the age of assets and replacing that in the books; this was in reply to a query on whether the due diligence of VSNL overvalued the company's assets at the time when the company was bidding for it.

"The issue of devaluing our assets and downsizing comes mainly from the issue of competitiveness of business which was not an issue two years ago."

"Downsizing of assets is the price we will have to pay for being competitive," he said.

Mr Tata also said that while the long-term prospects were good, in the short-term the company would be going through a "transition process'', its main business of international telephony being substituted by other businesses.

The Tata Group would like to purchase the remaining Government of India stake in VSNL. However, some issues remain to be sorted out. One of them being the land property owned by VSNL, the other being the `golden share' that the Government wants, which would give them many rights of any 26.5 per cent stakeholder, on which the Tata Group had its own view.