NEW DELHI: BSNL's proposed dilution of 10% equity through an initial public offering (IPO) has run into trouble as its unions are raising questions over valuation of the offer. "By management's own admission, merchant bankers have not been appointed for the IPO, so how has the price been established and announced", union members question.

BSNL's unions — India's largest after the Indian Railways — have rejected the idea of an IPO, despite telecom minister A Raja's offer of 500 shares at Rs 10 each for each of its 3.5 lakh employees, with an expected share price band of Rs 300-400. "Declaring a price range without the requisite due diligence or engagement with merchant bankers is a reckless move," said V A N Namboodiri, general secretary, BSNL employees union.

"This low share price is extremely damaging for BSNL and should invite the regulator's scrutiny," he says. With a mobile subscriber base of 40 million and a fixed line base of nearly 32 million, BSNL should logically be valued multiple times higher than its private sector competitors Bharti, Vodafone and Reliance.

BSNL has prime real estate, access to the best spectrum, has been guaranteed priority spectrum for 3G, and by virtue of its state-owned status, will always have a line of sight into spectrum. All these are serious upsides for a far stronger valuation, say industry analysts. Namboodiri points out that no private sector company would announce an IPO in this manner.

"The logical route for any company looking to raise funds is to restructure its operations to create maximum shareholder value and appoint merchant bankers before going to the market," he says. "BSNL is the Indian public sectors crowning glory. It has played a historic role in connecting the unconnected in the remotest regions of the nation. To engage in a speculative share price discussion can seriously undermine investor sentiment.

BSNL deserves better," he added. "Any move to bypass substantial objections by the unions or distract us with ESOP lollypops will fail.

This is a very serious matter and requires very serious engagement," said one of the union leaders. Unions are also opposed to an IPO since its benefits to BSNL and its employees itself are questionable. "Arguments that an IPO will bring transparency or improve stock market sentiment are bogus. It implies that the current leadership is not transparent.

Moreover, why should BSNL be used as a guinea pig to improve market sentiment," asked Namboodiri. BSNL's revenues in the last fiscal slipped over 10% from Rs 40,135 crore in 2006-'07. BSNL desperately needs restructuring. Its survival depends on ensuring that it remains profitable with future growth areas like mobile, broadband and enterprise given full opportunity to grow and compete.

BSNL has been a price warrior in long distance and mobile roaming. It is eyeing new business streams to increase revenues and plans to invest roughly $10 billion in capacity expansion over the next three years.