Maruti's disinvestment versus MTNL's rape (19 May 2002)
Last week, MTNL stunned investors by investing Rs 250 crores the bonds of Maharashtra Krishna Valley Development Corporation (MKVDC) whose Rs 400 crore issue was finding no takers after it defaulted on interest payment. MTNL’s highly questionable decision was clearly politically motivated, because no finance manager worth his salt would justify an investment in a defaulting company. Reacting to the news, a senior telecom expert quipped, ‘money deals have a way of cutting across political affiliations.’ How true. In this case, it is apparently the powerful contractor lobby in Maharashtra which has pulled the necessary strings to recover their investment in an opposition-ruled state. Until recently, these contractors used to arm-twist politically controlled co-operative banks to invest in MKVDC bonds, but after the cooperative bank scam have brought bank managers under the scrutiny of multiple regulators, they are unwilling to let their arms be twisted at least until the dust of the gilt scam settles down.
So our obliging politicians hit on MTNL, whose reserves, built over the years by fleecing captive consumers, run into several thousand crores of rupees. Immediately its share price plummeted over five per cent from Rs 150 to around Rs 140 at the end of the week. It would probably have dropped further but for the Arun Shourie effect, which has been holding up PSU stocks, even in a market unnerved by the Kashmir situation.
Investors are the quickest to recognise that Shourie has pulled off a serious coup by wresting a Rs 1,000 crore control premium from Suzuki Motor Company. The government has mopped up a cool Rs 2,424 crores for diluting its holding from 50 to 45.5 per cent (including the control premium) and hopes to collect more if it is able to get a good price for another 25 per cent of its reduced stake which it hopes to offload at the end of this financial year.
Although Shourie made no such announcements at his press conference, the corporate grapevine says that the biggest hurdle to the divestment was not in the negotiation with Suzuki but with the NDA’s own saffron ally in Mumbai, Balasaheb Thackeray. But even discounting the Shiv Sena chief’s last minute tantrums, the Suzuki deal is a considerable achievement.
Compare what the government wrangled this time, with the Rs 32 crore that the Congress government got for bringing Suzuki’s stake on par with its own, and giving it the power to veto any sale of government equity. Things were so bleak that when Rahul Bajaj stirred things up in November 2000 by offering to buy the government stake, with the overt backing of Bal Thackarey, it seemed to me like a good deal. Maruti Udyog had just declared its first loss, government was locked in a nasty battle with Suzuki over management control and the union was threatening a prolonged agitation. The disinvestment process was also in the doldrums with politicians openly damaging the prospects of PSU.
Remember how VSNL and IPCL were both victims of political manipulations and the Disinvestment Commission was not allowed to function? With this as the background, Suzuki had apparently begun its negotiations, this time too, at a low Rs 170 crore as control premium. It had to be ‘persuaded’ to part with a considerably higher price. The Maruti deal has been quickly followed up with the long delayed and controversial sale of IPCL. In this case too, the political machination between Reliance’s friends and foes continued until the very end, ultimately the sale is set to fetch the government approximately Rs 1,500 crores.
More significantly, investors believe that Reliance has done an Indian Oil Corporation (IOC) and bid far higher price than it was expected to. Having lost out on VSNL and IBP by bidding low, Reliance was clearly taking no chances this time. Clearly we have come a long way from the days when disinvestment and privatisation were only a mandatory part of Finance Ministers’ speeches. Starting with BALCO, to VSNL, CMC, IPCL, Maruti, and sundry hotels, Arun Shourie has single handedly countered over five years of negative perceptions because of hopes that were repeatedly raised and then dashed to the ground. And it is due to this positive influence that the MTNL scrip did not get a bigger bashing when its reserves were plundered last week.
Retail investors hold barely two per cent of MTNL’s equity. Indian banks, institutions and insurance companies hold over 22 per cent and FIIs form a substantial chunk of its investors with a 15 per cent stake. Normally, a decision like the MKVDC investment would have attracted an avalanche of selling by FIIs, but they are holding on this time, primarily in the hope that it will soon be on the block for divestment of government holding. A conversation with analysts who track the company reveals that nobody has a very high opinion about MTNL’s ability to cope with competition as a PSU. Revenues are already under pressure, and the company has really begun to feel the impact of competition in the last few months. Even those FIIs who think that MTNL is a good buy because government is rationalising the labour force, and believe that its loss of market share has not been very significant, are unequivocal about the fact that MTNL’s future lies in its disinvestment.
But how does one persuade a politician to put national interest before vested interests? Arun Shourie is the exception, who has demonstrated that one individual at the helm, with courage and commitment can transform the most corrupt and moribund system. But we are all too dependent on one that one individual. It does not require much intelligence to realise that he probably makes new enemies with every successful divestment. Can we expect the Prime Minister and the Sangh parivar to at least give Shourie the same dogged support that they are extending to a discredited Narendra Modi? Only time will tell. -- Sucheta Dalal