Why is the government exiting its entire stake in Tata Communications?

The government has decided to sell its entire holdings in Tata Communications via an offer for sale or OFS. The balance will be offloaded to Panatone Finvest, which is the investment arm of Tata Sons. Currently, government of India holds 26.12% stake in Tata Communications, Panatone holds 34.8% and Tata Sons holds 14.07%. The rest is held by the public shareholders of the company.

Tata Communications had taken over VSNL or Videsh Sanchar Nigam Ltd in 2002 and against that deal the stake of 26.12% had vested in the government of India. Now as part of its disinvestment drive, the government of India will sell its entire shareholding in the company through a mix of OFS and selling the balance to Panatone.

Currently, the Indian government holds 7.45 crore equity shares in Tata Communications and based on its last price of Rs.1,290 the stake owned by the government will be worth Rs.9,601 crore. This will be done in two steps. In the first step, the Indian government will offload 4.59 crore shares via the OFS route constituting 16.12% equity shareholding of the company. Subsequently, the balance shares will be sold to Panatone Finvest of Tata Sons.

Upon completion of the above transactions, the government will cease to be a shareholder of Tata Communications. This will require the amendment of the agreement signed in 2002 between the government, Panatone, Tata Sons and Tata Communications. The government will be looking to complete the deal in this fiscal year so that it can be used to prop up its disinvestment revenues for the year, which is woefully short of the target of Rs.1.75 trillion.