The Mittals' offer to pick up Bharti's floating stock will enable them to offload the shares at a prenium later.

By Anshu Tandon

If the 41.46 lakh shareholders of the Rs 80-crore Bharti Telecom bite their bait, the Mittals--who promoted the company in 1985--could be laughing all the way to the bank. Last month, the Mittals made an open offer to buy back the 24.50 per cent of Bharti Telecom's stock at Rs 95 per share, which is 14.70 per cent more than the market price of Rs 81. Having done so, they may offload these shares at a higher price in the future.

A successful offer will push the holdings of the Mittals--who already own around 75 per cent stake of Bharti Telecom's equity after purchasing the 9 per cent stake held by arbitrageur C. Sivasankaran's Sterling Horticulture; the 2.66 per cent stakes held by Isabella Traders and Bhagyashree Leasing; and the 1.48 per cent stake held by the Bilgrami family--to more than 90 per cent. And that would allow them to delist the company.

Earlier, reports that the ?14-billion British Telecom, which holds a 22.50 per cent stake in Bharti Cellular, was planning to make an open offer too proved to be a case of mistaken identity. With British Telecom's Arun Seth clarifying that the British major had no such plans, it was clear that the `BT' in question was only Bharti Telecom.

Obviously, the Mittals realise that Bharti Telecom's scrip price is lower than its intrinsic value. Agrees Sunil Mittal, 40, ceo, Bharti Telecom: "We believe that the stockmarket has never valued our shares correctly. Therefore, in March, 1998, we decided to buy back the floating stock, and delist the company."

Actually, the holding structure of the Rs 240-crore Bharti Group is such that Bharti Telecom has substantial holdings in its operating arms. For instance, it has a 80 per cent stake in the Rs 14-crore Bharti Tele-Ventures which, in turn, has a 51 per cent stake in the Rs 124.60-crore Bharti Cellular, and a 30 per cent stake--which will go up to 51 per cent in 1997-98--in Bharti Telenet.

However, the global investment banker, Lehman Brothers, valued the cellular licence for Delhi held by Bharti Cellular at $430 million (Rs 1,700 crore). That translates into a scrip price of Rs 402 in the case of Bharti Telecom (equity base: Rs 16.90 crore). Thus, the Mittals' offer of Rs 95 per share is nowhere near the real value of the scrip.

Opinion within the company also appears to be divided. While Mittal contends that the scrip is undervalued, Akhil Gupta, 42, director (finance), Bharti Telecom, justifies the low offer-price: "As you move up the operating company's ladder (towards the holding company), you have to discount the price. On that basis, we are giving the minority shareholders a good exit-price at Rs 95 per share."

Disagrees a Mumbai-based analyst: "The promoters are making a killing at such a low price." Sure, investors have legitimate reasons to discount the scrip as well. First, Bharti Telecom posted net profits of Rs 7.02 crore in 1996-97 only due to interest income of Rs 3.01 crore, and a deferred expenditure of Rs 4.11 crore. Second, Bharti Cellular incurred a net loss of Rs 21.20 crore in 1996-97. So, the promoters have found a win-win solution.

If the Mittals manage to mop up the requisite shares, they can later offload them at a higher price. If they don't, the scrip price is likely to go up due to the open offer. Moreover, by making the offer through its Channel Islands-based Bharti Global--a 100 per cent subsidiary of Bharti Enterprises--the promoters may save on the capital-gains tax, and find it easier to offload the shares to strategic foreign investors. In the bargain, it may just be the investor who has been caught in a cross-connection.

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