Both the state-run organisations have lost their value. BSNL is down to not more than $20 billion from close to $70 billion. So is the fate of MTNL
The debate on saving state-run Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) have been going on for the past several years; by merging them together to synergise operations, is one approach amongst many. To my reckoning, the time this debate has gone on could be close to ten years. During this period both the organisations have lost their value, BSNL from close to $70 billion is down to not more than $20 Billion. So is the fate of MTNL. One approach has been to merge the two organisations. There are statements in the press that the process would get completed by July 2015. Approaches like MTNL acquiring BSNL or vice-versa and of course merging the two together.
It must be understood that one of them is listed and the other is not. Whatever approach of the three one takes, the question of valuation will arise from the point of view of the share holders of MTNL. In this debate alone of what to do all we have seen is erosion of the valuation of both the organisation accompanied by an extremely lacklustre performance despite having the best infrastructure and reasonable competent man power. Should this approach continue, July 2015 too would be a mirage or wishful thinking?
What needs to be done is to find the value of BSNL? To do that there are two main issues which need to be resolved?
Synergy between the two by merging them together
Governance is a larger issue encompassing the entire approach to the public sector units (PSUs). My view is that they have to be board governed and not managed on day-to-day basis by the administrative Ministries. As I said, this issue has to be resolved at much higher platform as a clear policy directive. My views on this can be summed up by this question: “Does Sunil Mittal seek the permission of Sanchar Bhawan to procure any equipment or hire and fire any of his staff or matters relating to their compensation?” This first step has to be to restructure both the Boards by empowered personnel from both inside and outside. We have to bring in eminent professionals from outside, like what has been recently done create a committee under TSR Subramaniam. This step has to be taken ASAP. The mandate has to be turn around, complete Bharat Broadband Network Ltd (BBNL) and get BSNL listed.
The debate has been centred on how to go about it for the last so many years. In order to better understand the problem, the merger is contemplated between a listed company and an unlisted company, MTNL is listed and BSNL is not. MTNL has few ADR holders as well. The debate is, does MTNL merge with BSNL or vice-versa? How to compensate the existing MTNL share holders? There have been a deluge of reports from the big five, however none giving a clear path. My view is that before seeking any report from any of the Big Five, BSNL must be listed. The steps to be followed would be:
- To carry out an in house computation of its net worth taking into account the massive infrastructure and the land and buildings on the basis of its true market value. To my belief that in itself would be mind bogglingly close to few billions.
- Get a sanity check of the valuation by a good Chartered Accountant (CA) or one of the top public sector or private Indian bank. To my mind ICICI Securities and SBI Capital would fill the bill. This would also provide a balance between private and public. Member (Finance) of the Department of Telecom (DoT) and a Secretary from Ministry of Finance (MoF) must have oversight.
- Let us say the valuation is close to $50 billion. Convert that into number of shares of Rs10 each, say Rs300 billion. Either issue a fresh equity of 30 billion shares so that money comes to the company or let the government sell their 30 billion shares or a mix of the two say 15 billion each. Whatever approach is taken, it must be made clear that the money will be used for the purpose for which it has been collected. This could include even issues like offering voluntary retirement scheme (VRS) to some of existing employees. These shares can be priced at some discount to the book value discovered. Bundle size can be created for the entities to pick bundles of various sizes depending upon their appetite. The minimum bundle could be say Rs50 crore.
- Let these shares be forced to be purchased by PSU banks, Life Insurance Corp of India (LIC) and or other Indian financial institutions. The preference should be Indian institutions and banks. I am quite sure that these would be lapped up. If oversubscribed keep a green shoe option of 3% of the issue size.
- Following the completion of this sale of say 10% to 13% of government or BSNL or a mix of the stock, take immediate action to list the shares at both BSE and NSE. Allow them to trade for some time. Some of the entities may off load. Let the trading continue for some time. At least three months time must be given to trade to discover the value. During this period, restructuring of both BSNL and MTNL must continue by appearing them to be board governed.
- Based on this valuation, issue fresh equity of say 5%, in case not done as above, to raise money with the sole purpose of downsizing the bloating man power by bringing in VRS and or any other schemes to demonstrate that BSNL means business. Fresh equity means, money into the company and not government.
- Separate the Chairman and CEO (chief executive officer) post. Chairman must be an eminent personality. Bring in hardnosed professionals to run the company and board.
- In the mean time continue to restructure the board by bringing in eminent personalities form outside as well. Start looking at the compensation structure of the personnel of the two companies to attract talent into the company at all levels.
- Once this exercise is completed say in a total of six months, a benchmark price point would be available for BSNL.
- This is the time when an announcement should be made that the Government intends to merge the MTNL and BSNL at swap ration say 100 shares of MTNL buys you one BSNL share.
- Make an offer to the American Depositary Receipt (ADR) holders and others.
- Take action to coalesce the two Boards into one.
- One immediate action to increase revenues of both BSNL and MTNL is to order them to allow all private networks to Roam on them. They are losing big time by some stupidity. They have the best infrastructure adequate enough to take care of all the roamers all over India.
The debate can go on till cows come home. Few more July dates will go by. Three steps:
(a) Establish BSNL price point by professional valuations
(b) Restructure Boards and improve governance, look at compensation to incentivise staff, attract staff, retire staff
(c) Allow all private networks to roam on the network.
(BK Syngal is former CMD of erstwhile Videsh Sanchar Nigam Ltd (VSNL). He is a B Tech (Hons) and M Tech from IIT, Kharagpur, C Eng (UK), MIEE (UK) and Sr MIEE (US). He is also a member of the London Court of International Arbitration