MTNL jumps 5% as Cabinet approves merger with BSNL

Topics Buzzing stocks | MTNL | BSNL

Shares of state-owned Mahanagar Telephone Nigam Limited (MTNL) advanced 5 per cent to Rs 6.19 apiece on the BSE on Thursday after the Cabinet on Wednesday approved a Rs 70,000 crore relief package for the company and for Bharat Sanchar Nigam Ltd (BSNL). While approving the package for the two financially stressed entities, the Union Cabinet also drew up a timeline to merge them.  

"The Union Cabinet approves the proposal for revival of BSNL and MTNL by administrative allotment of spectrum for 4G services, debt restructuring by raising of bonds with sovereign guarantee, reducing employee costs, monetisation of assets and in-principle approval of merger of BSNL and MTNL," the government said in a statement.

Briefing the media after the decision, Telecom Minister Ravi Shankar Prasad categorically said the government was neither closing down, nor divesting its stake in, BSNL and MTNL.

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Analysts, however, said the revival package came too late from the government. “The announcement has come too late. This should have been done years ago. Both these telcos are bleeding on the operational front. The merger, along with the proposed voluntary retirement scheme (VRS) package, can help contain operational costs, but it may not be sufficient to revive the sagging fortunes,” says A K Prabhakar, head of research, IDBI Capital.

The package includes a sovereign bond issue worth Rs 15,000 crore, to be serviced by the two telcos. Also, BSNL and MTNL will be allotted 4G spectrum at an administered price, pegged at the 2016 auction value. The two firms would be allotted 4G spectrum worth Rs 20,140 crore, Rs 29,937 crore for VRS covering 50 per cent of their employees and Rs 3,674 crore for goods and services tax (GST) that will be levied on allocation of radiowaves. 

"It is expected that with the implementation of said revival plan, BSNL and MTNL will be able to provide reliable and quality services through its robust telecommunication network throughout the country including rural and remote areas," the government said.

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