BSNL unions reject Esop offer in mega share sale

With the largest worker unions at Bharat Sanchar Nigam Ltd, or BSNL, opposed to a proposed share sale in the state-owned phone firm, Union minister for communications and information technology Andimuthu Raja has offered the company’s more than 300,000 workers stock at Rs10 a share compared with the Rs300-400 he expects it to list at.
The Union government has started the process of selling shares in an initial public offering, or IPO, with BSNL’s board of directors last week approving a share sale of up to 10% equity shares in the company.BSNL is India’s largest phone services firm by sales with revenues of some Rs39,715 crore last fiscal and is projected at Rs50,000 crore by 2010.
“The trade unions have expressed their apprehensions saying that BSNL can be managed better without an IPO and that the employees will suffer. The plans for public listing will be finalized after some round of talks with the employee unions—individually and collectively,” Raja told reporters on Thursday after a first meeting with the unions.
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Each BSNL employee will be offered 500 shares through employee stock option plans, or Esops, at a price of Rs10 each potentially netting each worker up to Rs200,000, the minister said.
BSNL’s director of finance S.D. Saxena said the IPO could take place within six months though investment bankers to the sale had not been appointed.
The worker unions, however, stuck to their stand. V.A.N. Namboodiri, general secretary of BSNL Employees Union, the largest such group at the New Delhi-headquartered firm, said his union would reject the stock option offer and that it remained opposed to the company’s listing.
A second trade union echoed the view. “Even the private companies are not going for IPO now. At present we need to improve the performance of the company,” Thomas K. John, general secretary, Federation of National Telecom Union, said over the phone, adding that an IPO was the first step towards privatization of the state-owned telecom services firm.
‘Each BSNL employee will be offered 500 shares through Esops, at Rs10 each, netting up to Rs200,000.’
Worker unions are powerful at BSNL. Some 13 unions represent 304,000 BSNL employees, but five of six workers are members of four unions. The largest among them are the BSNL Employees Union backed by the Communist Party of India (Marxist); Federation of National Telecom Union, which is supported by Intuc (Indian National Trade Union Congress); National Federation of Telecom Employees, the trade union wing of the Congress-backed Aituc (All India Trade Union Congress); and BMS (Bharat Mazdoor Sangh).
Analysts say union opposition and weak market sentiment—Indian shares have lost a quarter of their value this year, and IPO plans of about $4.1 billion have been deferred—could limit investor appetite for large offers.
“I have some reservations about such a large IPO,” said R.K. Gupta, managing director of Taurus Mutual Fund. “The first thing is they will have tough time in convincing the unions and just think of the kind of impact it would have on the broader market in terms of liquidity.”
In mobile subscribers, BSNL lags Bharti Airtel Ltd—whose market value is about $39 billion (Rs1,634 crore)—Reliance Communications Ltd and unlisted Vodafone Essar, which is controlled by Vodafone Plc.
At the end of June, BSNL had nearly 73 million wireless and fixed-line subscribers, slightly ahead of mobile services leader Bharti Airtel with nearly 72 million users.
In January, Saxena, had said the firm valued itself at $100 billion, and was looking at selling 10% to the public. On Thursday, he said BSNL was “still very aggressive” on the valuation.
In 2004, India raised $2.5 billion by selling a 10% stake in state-run oil producer Oil and Natural Gas Corp. Ltd, a record at the time, and $1.3 billion from a public offer of power producer NTPC Ltd.
They were the last big public offerings by state-run firms.
In a separate decision, the government had decided to compensate BSNL for revenue losses from running rural networks. “We have decided to exempt licence fees on landlines in rural areas, arising out of sharing of adjusted growth revenue (AGR), which will be Rs600-800 crore,” Raja said. Phone firms in India pay between 2% and 7% of gross revenue to the government as licence fees.
The government has, on recommendations from the country’s telecom regulator, decided to compensate BSNL for the losses on access deficit charges or a levy meant to compensate the phone firm for its rural business that was rescinded by the regulator in March.
The firm will be compensated Rs2,000 crore by India’s universal service obligation fund, the minister said.
New Delhi also has approved release of one block of spectrum or airwaves each to BSNL and Mahanagar Telephone Nigam Ltd to help them roll out 3G, or third generation, mobile phone services and have a first-mover advantage over private operators in the country.