Why Unitech wins even after being 90% down & Government loses even after gaining $330 million?
First lets talk about what happened to the Unitech’s stock price in the last one year.
As you can see, the 52 week High of Unitech stands at Rs. 546.80. And on 24th October 2008, the stock price fell to a laughable Rs 30. That’s more than a 90% fall. And 24th October’s close was 50% less than that of Thursday. By the way, Unitech is no small or micro cap stock. Its a large cap! A large cap loosing 10% in a day is terrible, and here Unitech losing 50% was just horrifying for the entire market.
And let me remind you, Unitech was the stock that traded around Rs 1.50/- (only!!!!) at the start of Indian Bull Run in 2002-03. So it was a gain of a mind boggling 36500% (OMG..OMG..OMG) in a span of 5 years. Even Warren Buffet will be feeling shy at this. But on Friday, Unitech’s stock was really available at a throw away price. Why? Because even if you liquidate all the current land bank of Unitech, you still get Rs. 171 for each share. And here, each share is available @ Rs. 30 (!!)
It was like people had the option of choosing between a stock of Unitech and 2 packs of potato chips.
Now after this horrifying beating, Unitech gave its investors something to cheer about. It sold 60% of stake in its telecom arm to Norway based Telenor for 6120 crores. This values the telecom firm of Unitech at 10,200 crores. And the price they paid for acquiring the telecom license was 1,651 crores. Now that’s a great investment for a company which neither had any subscribers nor any infrastructure. Again I say that even Warren Buffet would have felt shy at such an investment.
Now government is granting a license for Rs 1,651 crore without an auction. Now, a very simple question that the government needs to answer is that, “Why should we pay our hard earned money in terms of taxes at various levels, when the government can earn that money by careful auctioning of the spectrum?” Government has clearly lost at least 8000 crores in the Unitech deal alone. Or lets take the worst case scenario, then government has atleast lost around 7000 crores or $1.4 billion. Now isn’t it a more prudent thing to get that money from Unitech and Telenor rather than us? Government is actually milking the wrong cow. It is good for Unitech, that after such a massive erosion of its market capitalization, it got a really good deal. But, it should not have been at our expense.
Telenor is no small company and ranks 21 in the recent list released for the top 25 telecom companies and is 54% owned by the Norway government. Telenor has mobile operations in 12 countries with 160 million subscribers.
This is the second major deal of the new GSM licensees. Earlier, Swan Telecom, which has telecom licenses in 13 circles, sold 45% stake to UAE-based Etisalat for $900 million.
But, I really don’t think that the government’s decision of not auctioning the licenses and granting them at a throw away prices is justified. Its actually very stupid.