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VSNL could lose $72-$76 million from Worldcom

VSNL stands to lose Rs 3.5-3.7 bn if US telecom giant WorldCom files for bankruptcy, a Mumbai-based analyst estimates.

india Updated: Jun 29, 2002 22:54 IST

India's international phone service monopoly Videsh Sanchar Nigam Ltd stands to lose 3.5-3.7 billion rupees ($72-$76 million) if U.S. telecoms giant WorldCom Inc files for bankruptcy, a Bombay-based analyst estimates.

That is more than a fifth of the Indian company's pretax profit of 21 billion rupees for the past year to March and probably an even higher percentage of this year's earnings, said Sanjeev Prasad, a telecoms analyst with Kotak Securities.

"As a percentage of 2003 profit it would be definitely higher because profit will probably decline," as tariffs drop with the entry of more service providers into the newly deregulated Indian international call market, he said.

S.K. Gupta, the chairman of New York Stock Exchange-listed Videsh Sanchar Nigam Ltd (VSNL), declined to comment on the matter when contacted by Reuters on Friday.

"Let me do my homework first. I don't want to say anything about this now," he said.

VSNL's shares plunged 7.4 percent, or 11.8 rupees, to close at 147.40 rupees on the Bombay Stock Exchange. More than 1.6 million shares were traded, nearly five times the past month's daily average of 326,000.

Prasad estimated the one-time charge to VSNL at 14 rupees per share, given its 285 million shares outstanding.

"I think it's more or less factored in (the share price) now," he said.

Call completion
The Economic Times daily, quoting unnamed sources in VSNL, reported WorldCom could owe the company five billion rupees in call completion charges for phone calls made between the United States and India between April and June.

It said the amount paid to VSNL by WorldCom averaged about 1.5 billion rupees a month and was paid after a three-month lag.

Clinton, Mississippi-based WorldCom faces bankruptcy after U.S. regulators charged the second-largest U.S. long-distance phone carrier with fraud after the company admitted earlier this week it had booked $3.8 billion in expenses improperly as capital investment.

The company said it would restate its results for the last five quarters, erasing all profits from the beginning of 2001.

WorldCom has $30 billion in speculative-grade, or junk, debt and failed to secure a crucial $5 billion funding package due to the accounting bombshell.

Prasad said WorldCom has been VSNL's biggest partner for calls between the United States and India.

As there were far more calls from the United States to India than vice versa -- The Economic Times put the ratio at 70:30 -- WorldCom always owed VSNL money at the end of the month.

Analysts say the disparity in the cost of phone calls explained the imbalance. It costs about 40 rupees a minute to call the United States from India, compared to just five rupees a minute in the opposite direction.

Recently privatised VSNL, now owned by India's second-largest business group, the Tatas, receives 88 percent of its operating revenue from international phone services.

It still faces no competition even after the government ended its monopoly on international telephone traffic in April.

First Published: Jun 29, 2002 14:22 IST