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December 18, 1997


And the winner is…

Reliance is tipped to bag 20% stake in VSNL's regional hub project.

Several of India's top corporate groups, including the Tatas, Birlas and Reliance have evinced interest in picking up an equity stake in the nearly Rs 20 billion regional telecom hub project of international telecom carrier Videsh Sanchar Nigam Limited.

The Tatas, A V Birla Group and Reliance are among some 10 respondents to a request for proposals from Infrastructure Leasing and Financial Services
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IL&FS has been mandated to recommend a local joint venture partner who will hold a 20 per cent stake for the VSNL project.

According to unconfirmed reports, the Essar Group also responded to the IL&FS letter.

However, it is Reliance that is being tipped to bag the stake in the regional hub project.

Sources have accused IL&FS of rushing through "an insta-parade" while shortlisting the domestic investor.

"We were asked to respond within 48 hours to a project this large. The commitments could be anything between Rs 2 billion and Rs 4 billion in equity alone. Besides, other qualifying criteria, such as a presence in the telecom industry, have not been spelt out clearly," an industry insider said.

VSNL proposes to place some 20 per cent equity in the regional hub joint venture to a domestic investor. It plans to reserve up to 25 per cent for an international partner and keep 25-30 per cent with itself. The remaining 25-30 per cent may be hawked to the public or other participants in the venture like IL&FS and the Indian Space Research Organisation.

When VSNL had floated a global tender inviting joint venture partners for its South Asian regional hub project in August, Reliance had strongly criticised the decision to invite only foreign telecom majors.

It had sent a letter to the Department of Telecommunications and VSNL, complaining against the move.

Seven telecom carriers submitted bids in mid-October in response to the VSNL global tender. The seven bidders are: the British Telecom-MCI combine; Cable & Wireless; the Global One Consortium (comprising Sprint International, Deutsche Telekom and France Telecom); Hutchison Telecom; Canadian Teleglobe International; Australian Telstra International and North American Gateway, an NRI company operating under the brand name, NextAge.

The VSNL joint venture envisages development of India as a regional hub for voice and data telecom traffic by linking up a trans-Eurasian cable to South Asian countries like India, Sri Lanka, Bangladesh, Myanmar and, possibly, Mauritius and Pakistan.

This would be done by setting up a high-capacity fibre optic submarine cable from Karachi to Calcutta, which would have landing points in Bombay, Ernakulam and Calcutta with spurs or offshoots running off to Mauritius, Sri Lanka, Bangladesh and Myanmar.

A Jalandhar to Lahore land cable has also been proposed in the venture.

About 5 per cent of regional telecom traffic is expected to be routed through the hub, which will translate into cumulative revenues of some Rs 30 billion in foreign exchange over 10 years.

The revenue sharing of this 'transit' turnover was to have been worked out on a 90:10 per cent basis in favour of VSNL.

Apart from this, the venture will also garner revenues by way of leasing or renting circuits to the telecom administrations of other countries. Such lease revenue - to accrue from VSNL itself and from other telecom administrations in the region - is expected to be of the order of another Rs 25 billion.

- Compiled from the Indian media

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