With the Cabinet approving the sale of Tata Communications’ surplus land, the company would now be able to go ahead with its plans to raise equity. Earlier this year, the company had said it planned to raise $500-600 million (Rs 2,750-3,300 crore) of equity in three years.
On Friday, the company’s stock touched a one-year high of Rs 264 per share in intra-day trade on the BSE, before closing at Rs 260 per share, up 5.82 per cent.
The decision to sell the surplus land has been pending since erstwhile Videsh Sanchar Nigam Limited (VSNL) was taken over by the Tata group in 2002. The land—700 acres across New Delhi, Chennai, Kolkata and Pune—would be de-merged into a special purpose vehicle and sold at market prices. Tata Communications shareholders would get a part of the proceeds.
“The value of the land is being estimated at about Rs 8,000 crore. At this valuation, it could work out to about Rs 190 per share,” said Daryl Phillip, senior research analyst at Finquest. However, he feels it would take a year and a half to two years for the entire sale process to be completed.
Tata Communications stands to gain from the sale, as the pending de-merger of the land had prevented the company from going ahead with an equity sale. After taking over VSNL, Tata group had diversified it into managed information technology services and data centres. It also set up sub-sea cables and made international acquisitions such as Neotel in South Africa. The group has been funding all its capital expenditure through debt. Its total debt stands at about Rs 7,800 crore.
“The debt-to-equity ratio now is about four times. The company would be able to de-leverage,” said Phillip. He added the spurt in the company’s share price would sustain and, possibly, become the base price.
Tata Communications, which has been spending about $450 million (Rs 2,232 crore) annually in capital expenditure during the last five years, would spend about $250 million (Rs 1,237 crore) annually in the next three years.
Jagannadham Thunuguntla, head of research at SMC Global Securities, however, doubts the land valuations being floated. “The government wants to reduce its fiscal deficit, but questions on buyers and valuations remain. A few years ago, residential and commercial land was selling like hot cakes. But who is willing to buy that kind of land now?” he asks.
