Tata Communications To Hive Off Land Assets Into Listed Entity, Ends 15-Year Wait
A scheme of demerger which had been stalled since 2002 has finally received Tata Communications’ board approval.
Tata Communications Ltd. finally started the process to hive off more than 700 acres of its surplus land assets into a separate company that will be eventually listed with existing stakeholders, including the Government of India, getting shares.
The board of Tata Communications, the erstwhile Videsh Sanchar Nigam Ltd., approved the scheme of arrangement stalled since 2002, it said in a stock exchange filing today. The new entity, Hemisphere Properties India Ltd., will receive the land earmarked as surplus when the government sold 25 percent stake in Tata Communications in 2002 to Panatone Finvest, Tata Group’s investment arm. The board of Hemisphere Properties also approved the plan, the filing said.
Minority shareholders of Tata Communications will receive one share of Hemisphere Properties for every share held. There will be no change in the shareholding pattern of Tata Communications.
That ends the 15-year wait for minority shareholders of Tata Communications, including the government, who will now receive the benefit of the surplus land. Multiple brokerages have valued the 740.63-acre surplus land — in Pune, Delhi, Chennai and Kolkata — between Rs 6,000 crore to Rs 8,500 crore.
The demerger had been stalled ever since Tata Communications objected to the capital gains tax it would have had to pay on transferring of surplus land. That was resolved after the government amended the Income Tax Act to exempt asset sales by public sector units from capital gains tax. It included companies which have ceased to be public sector units after the divestment, benefiting the Tata Group company.
Hemisphere, after issuing shares, will apply to BSE Ltd. and National Stock Exchange of India Ltd. for listing. SBI Capital Markets Ltd. is the independent merchant banker to the transaction, which is subject to legal and regulatory approvals.
The spinoff of its land parcels will be a “key catalyst” for the Tata Communications stock, according to an Oct. 26 note by brokerage Emkay Global Financial Services Ltd. The other big event would be “deal consummation” for Tata Teleservices Ltd.’s enterprise business, according to the report.
Shareholding Of New Entity
The shareholders’ agreement of 2002 and Tata’s open offer letter later that year laid out that the shareholding of Hemisphere Properties will be based on the following considerations:
- Tata Group will transfer 25 percent of its shareholding to the government, taking the government’s share in the new company to 51 percent.
- Tata Group will also transfer 20 percent of its shareholding to minority shareholders who tendered their shares in the open offer.
