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VSNL Net Arm May Float ADR, Sees 1 Million Subscribers

Taking a cue from Satyam Infoway's recent successful foray on the NASDAQ, India's Telecom-Internet major Videsh Sanchar Nigam Limited (VSNL) may go in for an ADR float for its proposed Net arm VSNL Seamless Services Limited (VSSL).

It has also set a target of one million subscribers for the Internet services by April 2001.

VSNL officials maintained that the ADS move was being considered but a final decision would be taken after the subsidiary was valued and became operational in about three months. However, sources said some investment bankers have advised VSNL to dilute up to 25 per cent of its stake in the subsidiary, which could raise US$ 1 billion.

It is learnt that the telecom giant is in the process of appointing one of the Big 5 consultancy firms to conduct a valuation exercise. VSNL seems to be in a hurry to list VSSL either on NASDAQ or the New York Stock Exchange.

Given the response received for Satyam'a ADS float, VSSL could easily raise a larger amount. VSSL would be at least five times bigger in terms of Internet account base.The company is excited about what it terms as "tremendous appetite for Indian Internet stocks" which has been proved by the success of Satyam Infoway.

"VSNL is a giant and hence sky is the limit for its Internet subsidiary," says VSNL officials.

As of June 30, VSNL has 300,000 plus subscribers, compared to Satyam's 80,000 subscribers. VSNL has other competitive advantage including lower rates, longer service history, greater financial resources and easy access to network infrastructure controlled by the government. It also has monopoly over all the international telecom traffic from and to India.

VSNL has set a target of one billion account base by 2001. The company is expected to have an account base of 4000,000 by the end of current fiscal year. The 600,000 addition in the following year is being attributed to the fact that the Net arm, VSSL, will hold a national license and will have more areas to cover.

VSNL is currently operating only six nodes at the major metros in India. Lion share of its subscriber base comes from these six cities and other parts of the country where it merely provides node access to the Department of Telecom (DoT).

Once VSSL is set up, it will provide services across the country and this will lead to a sharp increase in the number of subscribers. The Internet business is expected to drive the growth of VSNL in the next five years when the company is expecting a turnover of $1250 million from the Net business alone.

According to inside sources, the process for the international offering has been started.

"A separate Net arm will reflect the strength of this business in the stock value, currently locked by virtue of being a small part of VSNL's revenue. The true worth of the business would only be realized once it is listed as a separate entity," said VSNL source.

The ISP policy limits foreign equity investments up to a maximum of 49 per cent and VSNL is not averse to it. Currently, VSSL has an equity base of $25 million, which too might recast.



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