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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