VSNL scrip up on ADR listing, but uncertainty remains

Salil Panchal/Netscribes

For the Videsh Sanchar Nigam Ltd, it may be too early to celebrate. While its ADR listing has breathed fresh life into the VSNL counter at the local markets, analysts and marketmen say it will take more than a successful ADR to sustain the stock in the long term.

On Wednesday, at the Bombay Stock Exchange, the VSNL stock witnessed strong trading interest, with the scrip touching the upper level circuit filter of 16 per cent and closing at Rs 831.35 against the previous close of 719.90. Financial institutions and private sector mutual funds were seen as major buyers at the counter.

The VSNL ADR was listed at the New York Stock Exchange on Tuesday. The ADR was listed at $11, with each ADR equivalent to half a share. A total of 3.32 lakh ADRs were traded on the first day of the listing.

Despite the strong trading interest in the local bourses, the overall fundamentals for the stock have not changed. Which would mean that worries over VSNL's voice telephony business and the government's stand over VSNL's monopoly will continue to dog the scrip.

According to a Credit Suisse First Boston analyst, while the ADR listing would generate trading interest and more liquidity at the counter, the problems linked to the monopoly will continue. A recent report by domestic brokerage K R Choksey stated that VSNL had the potential of a market performer and valuations could improve, provided the government disinvestment takes place at the earliest. The government currently holds 53 per cent in the public sector undertaking.

With the government deciding to end international telephony monopoly by 2002, it would not just mean diversion of VSNL's business to competitors but also pressure on its operating margins. And until the government decides on the manner in which VSNL will be compensated, the picture would remain unclear.

While liquidity at the counter is expected to improve over the coming week, the trading sentiment is not expected to improve in view of the overall scenario for the undertaking.

Dealers tracking the counter suggest that the local stock -- and not the ADR -- will continue to determine trading interest for VSNL. In the case of VSNL, since the offering is the conversion of its illiquid GDR offering into an ADR, the percentage of new investors buying into the stock would be minimal. The coming weeks could, thus, see the counter heading the way the Silverline ADR and the Aptech GDR did.

Money

Business News

Tell us what you think of this report