IDBI is in hunt for more Rs 2,000 crore for the merger with IFCI

22nd November 2004: The Industrial Development Bank of India (IDBI) demands fresh funds for the proposed merger with IFCI. IDBI has approached the government with a fresh demand of about Rs 2,000 crore, in the context of the FI’s proposed merger with the beleaguered IFCI. This is over and above the Rs 9,000 crore budgetary allocation it had received from the government to stabilise its stressed assets, as IDBI was merged with IDBI Bank. A senior government official said, “It is a huge dowry that the bank has asked for.”

Government sources said that IDBI was currently preparing a detailed plan for the proposed merger. It will submit a report to the finance ministry by November 30. Financial sector secretary NS Sisodia said, “The report will highlight possible ways of joining the two entities. Based on the report, we will take a decision on whether to take the subsidiary route to facilitate the merger or go in for a direct merger between the two entities.” He, however, refused to comment on the IDBI demand for additional compensation. The earlier NDA government had proposed a merger between Punjab National Bank and IFCI. However, the merger proposal fell through, as there was major protest from IFCI employees, who favored a merger with IDBI due to commonality of assets. However, government sources also said that other options were being explored. “In case IDBI refuses to take over IFCI, we will look at other options as well,” they said, adding that IFCI can’t sustain on a stand-alone basis. A number of meetings have already been held between the finance ministry officials and IDBI on the issue.

The finance ministry has made it clear that a final decision on the fate of IFCI would be taken before the end of the fiscal. “The merger exercise will take about a couple of months to complete,” the sources said. IDBI chairman M Damodaran, however, refused to comment on the proposal, when asked about the merger a few days ago. That apart, there would be major consolidation in the banking sector, keeping in mind the Basel II requirements. There would be about five to six mega banks instead of the 27 public sector banks in the next few years.

The process of BSNL-MTNL merger may take 10-12 months

19th November 2004: The communications and information technology (IT) ministry is likely to take six to eight months to submit its report to the Cabinet on merging Mahanagar Telephone Nigam Ltd (MTNL) and Bharat Sanchar Nigam Ltd (BSNL). The merger process is likely to take 10 to 12 months. Communications and IT minister Dayanidhi Maran said, “The bankers will take three to four months to prepare a report for synergising the operations of the PSUs.” He added that it would take six to eight months for the ministry to arrive at a solution for synergising the operations of the PSUs, after which the report would be sent to the Cabinet for approval.

Mr. Maran indicated that the department of telecommunications (DoT) had short listed merchant bankers for the synergisation process. On the issue of increasing the foreign direct investment (FDI) limit in the telecom sector, Mr. Maran said that discussions were on with the finance ministry. “It would take some time before the ministry announced anything on FDI in telecom,” he said. The minister added, “We will not rush the synergisation process of PSUs.”

DoT has mandated ICICI Securities (I-Sec)-ABN-Rothschild combine for the proposed merger of BSNL and MTNL. Almost all bidders went for the consortium option involving a consultant and a law firm. In the case of ICICI Securities, the consultant was AF Ferguson while Desai Diwanji was the law firm. There were six bidders, and five of them opted for the consortium route. Kotak had put in its bid with Deloitte while DSP Merrill Lynch joined hands with consulting major KPMG. In the case of SBI Capital Markets, its bid was with HSBC and PricewaterhouseCoopers (PwC), while Lazard and Ernst & Young (E&Y) formed another consortium. Only JP Morgan decided to go it alone. While speaking at the event, Mr. Maran said that Microsoft chief executive officer (CEO) Steve Ballmer, during his visit, had shown interest in collaborating with government R&D bodies like Centre for Development of Advanced Computing (CDAC) and National Informatics Centre (NIC) to develop solutions in local languages.

ICICI Securities to advice on merger of BSNL-MTNL

11th November 2004: The government has appointed ICICI Securities-led consortium as the advisor for synergising the operations of BSNL and MTNL, a move likely to see the merger of the two public-sector telecom companies at a later stage. The Department of Telecom has sent a letter to ICICI Securities-led consortium, appointing it as advisor to its exercise of synergising the operations of BSNL and MTNL, official sources said. The consortium has ABN Amro, NM Rothschild, AF Ferguson and law firm Desai & Dewanji. The ICICI Securities has been given time till March 10 to submit its report; it will work in cooperation with the advisory panel set up by DoT to look into the ways and means available to synergise the operations of the two PSUs.

Sources also indicated that BSNL and MTNL have been asked to give the advisor all the financial data as well as their views about the pros and cons of the synergising initiative. The advisor would study the strengths and weaknesses of the two state-run telecom majors, and the possible synergies between the two firms. It would also examine the merits and demerits of a merger between BSNL and MTNL and the method to be adopted for the same. The government hopes the entire exercise to be over by mid-2005.

One of the options that are considered by the government is the buy-back of MTNL's shares to merge it with BSNL. While the advisors will make their own recommendations, sources said, the DoT is not exactly in favour of any stake sale in BSNL. The government owns about 56 per cent stake in MTNL while BSNL is 100 per cent owned by the government.