Land-sale buzz keeps Tata Comm ringing

Tata Communications stock, which spiked up on Wednesday, knocked off some of its gains on Thursday as the company communicated to the stock exchanges that it had not received any communication from the Government of India on the surplus land issue in the recent past.

According to market insiders, some players including traders have sensed that the long pending de-merger of surplus land assets from its core business of telecommunication services into a realty or land asset holding company is in the offing.

The key trigger for the stock, which on February 10 had touched its 52-week low of Rs 193, is the legal entitlements to the gains from the de-merger.

According to the share purchase agreement, which had paved way for acquisition of 25 per cent stake from the Government in erstwhile VSNL by Tatas in 2002, all public shareholders, including those who tendered their shares in the open offer that followed the acquisition, will be entitled to the shares in the asset holding company. The public shareholders' entitlement is of course subject to a de-merger cut-off date, to be announced when the process rolls on.

Tata group will have entitlement in the de-merged land assets holding company only to the extent of five per cent, which it acquired later from the market. Tatas had acquired 25 per cent stake in VSNL, later changed name to Tata Communications Ltd, as the highest bidder in a disinvestment move.

The current declared shareholding (as on December 21, 2010) of Tata Communications, Government of India holds 26.12 per cent and three Tata group entities — Panatone Finvest, Tata Sons and Tata Power — hold 31.10 per cent, 14.22 per cent and 4.71 per cent, respectively, as promoters.

In the public category LIC holds 8.74 per cent. ADR holders' combined holding is placed at 7.09 per cent. The balance 8.02 per cent is held dispersed stakeholders, all having less than one per cent of the paid up equity of the company.

Traders and market law experts said that anyone who buys the shares from the market now until the cut-off date would legally be entitled to the de-merged land co's shares.

Tata Communications books of accounts as also the letter of offer (for open offer in 2002) showed a total surplus land assets of 773 acres in prime locations in metropolitan areas such as Greater Kaliash and Chhatarpur in New Delhi, Padianallur in Chennai, Dighi in Pune and Halisahar, near Kolkata.

“Even a very conservative estimate of the assets valuation, which may be allowed in the books of the de-merged entity, would indicate a windfall, mainly for the Government and the public shareholders. The current bets eye that magic figure,” said a dealer of a broking firm, which handled several Tata Communications transactions in the past two days.

“We welcome any Government process that hopefully will expedite the de-merger of surplus land,” Tata Communications statement further said.

“We estimate the value of the surplus land at Rs 14,300 crore. After deducting stamp duty and capital gains tax of 25 per cent and dividend distribution tax of 17 per cent, we get a per share contribution of Rs 234 for Tata Communications,” UBS, which upgraded the stock from reduce to buy with a target price of Rs 313, said.

The day traders on Thursday took some profits off the table as the stock finished at Rs 238 after touching its monthly high at Rs 250 during the session.

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