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Thursday, May 30, 2002

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`Strategic partner free to use reserves of divested PSUs'

P. Manoj


STRATEGIC partners are free to utilise cash reserves of public sector units (PSUs) that have been privatised including investment in other companies provided the decision is ratified by the board under the provisions of the Companies Act, according to senior Government officials.

"Cash reserves are not fixed assets and hence do not come under the asset stripping clause incorporated in the shareholders' agreement for the strategic sale of PSUs," a senior Government official said.

The Union Government has laid down a clear roadmap on the stripping of fixed assets by the strategic partner following the strategic sale, but cash reserves are exempted from this stipulation, the official said.

The successful strategic partner can utilise the cash reserves without even seeking an affirmative vote from the Government as long as the latter holds a 26 per cent stake in the divested company.

But, such a decision will have to comply with the requirements of Section 372 of the Companies Act, the official noted.

Section 372 deals with inter-corporate investments.

However, utilising the cash reserves for purposes of lending to entities which are not part of normal business will have to get past the affirmative voting right of the Government by virtue of it holding a 26 per cent stake in the company.

In the case of Videsh Sanchar Nigam Ltd (VSNL), this right can be exercised by the Government if the Tatas decide to provide a loan of Rs 50 crore and above from the cash reserves of the company.

This was common to all the disinvestment deals through strategic sales, but the quantum of loan varied from company to company, the official said.

VSNL did no wrong, says Disinvestment Ministry

THE Disinvestment Ministry on Wednesday took the stand that the decision of VSNL board to utilise the company's cash reserves of Rs 1,200 crore for acquiring a 25 per cent stake in Tata Teleservices, a wholly-owned subsidiary of Tatas, complied with the shareholders' agreement and was done to protect the interests of VSNL.

The Ministry's view is in stark contrast to the stand taken by the Minister for Telecommunications, Mr Pramod Mahajan, who has objected to the drawdown of Rs 1,200 crore from the cash reserves of VSNL by the new strategic partner, the Tatas. According to Mr Mahajan, the move by the Tatas had "made a mockery of the disinvestment process."

The Disinvestment Ministry has said that the affirmative voting rights of the Government will be triggered off only when the strategic partner seeks to utilise the cash reserves for lending to entities that are not part of normal business.

"Forget about the affirmative voting right of the Government, the decision was cleared in accordance with the clauses mentioned in Section 372 of the Companies Act and does not violate the shareholders' agreement," a Ministry official said.

"VSNL has decided to enter the basic telecom services sector and for this, an integration with Tata Teleservices (being a Tata Co) was essential since this would give VSNL the customer base of the latter. Otherwise, VSNL would be wiped out," the official said.

Government officials view this controversy as a fall-out of inter-corporate rivalry, considering the competition in the telecom sector.

Disinvestment Ministry officials said that there was no move now to modify the shareholders' agreements relating to ban on utilisation of cash reserves by the strategic partner in the upcoming cases of disinvestment.

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