The Hindu Business Line : Rlys to withdraw request for equity participation in RailTel

THE Railways Ministry, after failing to attract equity participation from state-owned telecom companies in its broadband foray, RailTel Corporation of India Ltd, has decided to withdraw its request.

"We have decided to withdraw the request after we realised that nothing much would come out of the proposal. With telecom equipment prices falling by as much as 70 per cent, our investment need has also come down and we feel we can manage without outside support," a senior Railway Board official told Business Line.

The Railways had been hoping to rope in Mahanagar Telephone Nigam Ltd (MTNL) along with Bharat Sanchar Nigam Ltd (BSNL) as minority partners in RailTel, but the two telecom companies were not interested unless they were offered a controlling stake in the company. The Railways, on its part, was not willing to let its equity fall below 51 per cent in the venture.

Another reason why RailTel decided against pursuing the issue was that in the falling interest rate regime, debt is no longer an expensive option to raise funds. "With equity, there is always a higher expectation in terms of at least 15 per cent returns, while debt is available at much lesser rate of interest," the official pointed out.

The Railways had invested Rs 20 crore as seed capital at the time of RailTel's inception in September 2001 and the rest of the equity was to come in the form of transfer of the existing broadband assets of the Railways. The Railways is in the process of transferring assets worth nearly Rs 250 crore to RailTel in the current financial year. The company has an authorised share capital of Rs 1,000 crore.

To meet the company's expansion plans, the Indian Railways Finance Corporation (IRFC) had raised Rs 100 crore as debt and had committed another tranche of Rs 54 crore. Incidentally, RailTel was the first instance where the IRFC had raised money for a purpose other than acquiring rolling stock (wagons, coaches and locomotives) for the Railways. IRFC is also set to pick up 15 per cent equity in RailTel as part of an earlier Cabinet decision.

The Railways is transferring its existing optical fibre cable (OFC) network of nearly 10,000 km along tracks along with its right of way (RoW) to RailTel. The total value of the assets and the RoW has been put at nearly Rs 650 crore.

RailTel is seeking to exploit the surplus bandwidth available with the Railways for commercial gain for the organisation. Apart from offering connectivity to organisations, it plans to take Internet to the heart of the country by setting up cyber cafes at smaller stations.

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Rlys to withdraw request for equity participation in RailTel