Videsh Sanchar Nigam Limited (VSNL) is India’s sole international telecom service provider and largest Internet service provider (ISP) in the country. The company got listed on NYSE at $11 on 15th August. Why did the company go for ADRs?
VSNL, the leader in ISP market has an existing base of over 400,000 subscribers and 622 leased line connections. The company earns 90% of its revenues from international telephony and the rest from the internet. But with the recent developments in the private foray into the ISP and long distance telephony services, VSNL also seems to be moving fast in the competitive era.
In May 2000, VSNL slashed the Internet tariff by 50 per cent and introduced the free night access (11 PM to 8 AM) scheme. This was applicable for both TCP/IP dial-up and ISDN accounts. As per the scheme, all customers registered with VSNL Internet services during June 1 to July 31, 2000 could avail the benefits till the duration of the account. VSNL also gave the benefits of the special package to its then existing customers by facilitating the premature renewal. Upon renewal, their then existing hours were doubled and added to the new plan subscribed.
VSNL has introduced many features for its Internet services like Internet to paging with an association with Easy Call Paging, national and global roaming and multi- lingual services.
VSNL has also launched its credit card gateway in alliance with Easy NetCom Pvt. Ltd and EVI Company. EVI is the authorized agency to verify the online credit cards of VISA and Master Card. Customers using the credit cards online renewal facility are connected to a secure server of Easy NetCom and their credit cards are verified online.
VSNL has also announced the commissioning of its WAP gateway (wireless access protocol gateway) and access to Internet services through WAP-enabled cellular phones. The company also unveiled 'crackbloc' services, a security feature provided to customers to enable access only from specified telephone numbers.
Back to the company’s ADR: Indeed, accessing the ADR market and listing on one of the American bourses seems to be the latest trend going by the number of companies that have made clear their intentions of doing so.
In 1999-2000, a total of around Rs. 5000 crores was raised by Indian companies in equity through the Global Depository Receipts (GDRs)/ American Depository Receipts (ADRs) route. The companies that raised overseas funds include ICICI Ltd (Rs.1,367 crores), Gas Authority of India Ltd (GAIL) (Rs. 1,085 crores), Satyam Infoway (Rs. 975 crores), ICICI Bank (Rs. 760 crores), SSI Ltd (Rs. 434 crores) and Tata Tea (Rs. 325 crores).
There are almost another 50 companies which have announced their plans to seek an overseas listing. The list is dominated by the information technology sector, with at least 30 companies in the fray. These include Aptech, Bharatplanet, BSEL, Caltiger, Datamatics Technologies, HCL Technologies, Hexaware, Hughes, ICICI Infotech, ICICI Web Trade, Indiaisonline, Indiatimes, L&T Information Technologies, Mahindra Information Technology, MTC, Nettlinx, NIIT, Orient Information, Pentamedia, Pentasoft, Resonance, Rolta, Vedika, Vision Technology and Zap.
From the other sectors, the intention for overseas listings has been announced by a majority of companies from the telecom or pharma sectors, which include Bharati Tele-ventures, Dishnet, Dr. Reddy's Laboratories, Mahindra British Telecom, Morepen, Nicholas Piramal, Ranbaxy Laboratories, Reliance Industries, Reliance Petroleum and Shanta Biotech. There are other PSUs also in queue including Indian Oil Corporation (IOC), Gas Authority of India Ltd (GAIL) and National Thermal Power Corporation (NTPC). MTNL, another competitor to VSNL in ISP business also has plans of listing on NYSE and had already filed to SEC. Apart from these, there are other companies like Gramophone Co., Gujarat Ambuja Cements, IOC, IDBI and Mahindra & Mahindra too.
VSNL, with its ADR listing on New York Stock Exchange (NYSE) under the symbol VSL, has repeated its history as it was also the first Indian pubic sector company (PSU) to raise capital through Global Depository Receipts (GDRs) in 1997. Thus VSNL became the fourth company to get listed on NYSE other than ICICI Ltd, ICICI Bank Ltd and Silverline Tech.
The scrip which opened at $11 on 15th August went up to $11.5 on 16th and to a maximum of $12.25. The company had issued Level-II ADRs, which means the termination of its existing GDRs traded on London Stock Exchange and converting them into ADRs on a one-to-one basis, each ADR equaling half a share.
The impact of this has been felt on the Indian bourses as well. The listing pepped up the scrip in the domestic market and it went up by 15.57 per cent on the National Stock Exchange on 16th closing at Rs. 825.60 compared to Rs.720 on 15th August. The scrip touched a high of Rs. 828.70 intra-day. On the BSE too, the scrip shot up to Rs. 835.05 but settled at Rs. 831.35 at close.
The rush towards foreign bourses may be sustained. While new companies are entering the domestic market, through initial public offerings (IPOs), the established ones are eyeing the overseas exchanges. While this rally is being led by knowledge- based companies, listings from traditional companies are likely to follow in due course of time.
On the other side, there have been bad experiences on the GDR listings. Since Indian companies were allowed to access funds in the global markets, there were 64 GDR offerings from 60 companies. Together, these companies raised a whopping $6.25 billions by offering GDRs to foreign investors and getting them listed on the Luxembourg and London stock exchanges. But out of them, 54 (84 per cent), are trading at steep discounts to the offer price. For instance, the GDR of Ballarpur Industries is traded at around $2 (offer price $100) - a discount of 98 per cent!
VSNL, which hit a high of Rs.3,250 in February is almost down by 60% for the fear that it would lose the monopoly on carrying of overseas phone calls. However, the company was eyeing at domestic long distance market and at the international markets. And even if the monopoly ends, the company expects a viable revenue sharing compensation package from the government.
Satyam Infoway's ADR was issued at $80 per ADR. Comparing the prices of VSNL and Sify, at the current market capitalization between five and six billion dollars, Sify trades at nearly 50 per cent premium to VSNL. VSNL however has a much larger subscriber base and obviously a far more profitable and sustainable business model.
Moreover, for the past few months, the average increase in outgoing calls has been increasing at 17 percent, while the increase in incoming calls is about 22 per cent. These indicate more chances of appreciation of the scrip both on Indian and on US exchanges.
However, in spite of VSNL's well established and good cash reserves, the company would see major competition henceforth. The gateway is also privatized and even at the steep increasing internet accesses, the company would be facing stiffer competition from the existing players and other new due entrants. Hence VSNL has to gear up and get the benefit of its contract with the government for having monopoly till 2004.
K.Venu Babu