Tata Communications will able to go ahead with its plans to raise equity, after the cabinet cleared the sale of the company's surplus land. Earlier this year, the company spoke about bringing in as much as $500-600 million (Rs 2,750 to Rs 3,300 crore) in equity, in the next three years.
The company's stock touched a one-year high today at Rs 264 per share, in intra-day trade, today. The decision has been pending since the last ten years, as VSNL (former name of Tata Communications) was taken over by the Tata group, in 2002.
The surplus land, which accounts to as much as 700 acres across New Delhi, Chennai, Kolkata and Pune will be de-merged into a special purpose vehicle (SPV). The land will be then be sold at market prices, and the current shareholders of Tata Communications will get a part of the sale proceeds.
“The land value is being estimated at around Rs 8,000 crore. At this valuation, it could work out to around Rs 190 per share,” said Daryl Phillip, senior research analyst at Finquest. However, he feels that the entire sale process might take another one-and-a-half to two years.
Tata Communications will not get a part of the sale, however, the company too stands to gain. The de-merger has been pending for ten years, as Tatas bought into the company in 2002. The overhang of pending land de-merger had stopped the company from going ahead for an equity sale.
After taking over VSNL which held a monopoly on ISD calls, Tatas diversified it into into managed IT services and data centres. It also set-up sub-sea cables and even made international acquisitions such as Neotel in South Africa. It had been funding all of its capex by debt, and its total debt stands at around Rs 7,800 crore.
“The debt-to-equity ratio is around four times, now. The company will be able to de-leverage,” said Phillip. He also feels that the spurt seen in the company's share price would sustain, and can also become the base price.
Tata Communications which has been spending as much as $450 million (Rs 2,232 crore) annually in capital expenditure for the last five years, will it would spend around $250 million (Rs 1,237 crore) annually for the next three years.
Jagannadham Thunuguntla, head of research at SMC Global Securities, however has his doubts on the land valuation numbers that are being floated around. “Government wants to reduce its fiscal deficit, but questions on who the buyers would be, and the valuation, remain. Few years back, residential and commercial land was selling like hot cakes, but who is willing to buy that kind of land, now?” he said.
