Technical Evaluation Committee during the 1997 sale of SLT shares

Two bids for the purchase of 35% of SLT equity stakes were submitted to the Public Enterprises Reform Commission (PERC) on 28 June 1997 by Nippon Telegraph & Telephone Corporation (NTT) and France Telecom – FCR (FT). The FT offer came through John Keells Holdings.

The report states that the Technical Evaluation Committee (TEC) comprising K.C. Logeswaran (Chairman), Siripala Jayaweera and Prof V.K. Samaranayake, evaluated the bids taking into consideration the following documents:- PERC's memorandum which outlines the positions of each bid; Financial Advisory Groups advisory note on the bids; valuation of SLT carried out by the Government Valuers' Department in 1996, and financial advisory group's valuation of SLT dated April/May 1997 . Based on the valuation, the TEC recommended the rejection of the FT offer and the acceptance of NTT's offer of US$225 million.

The reasons outlined for the rejection of the FT bid was that their bid price of US$160 million was too low when compared to NTT's offer.

FT wanted the stamp duty on the purchase consideration payable to the investor on the transfer of 35% shares by GOSL to be waved or paid by the GOSL. The TEC called it unacceptable.

The FT bid was conditional on the SLT debt owed to the GOSL being reduced by approximately US$100 million as a capital injection which the TEC said would amount to a reduction by US$35 million on the bid price.

The TEC also found it unacceptable that FT expected the license fee to be amended and in particular, the variable indexed to capital expenditure to be cancelled. FT was also asking for concessions which the TEC felt were open-ended. Other issues pertained to the management fee, monopoly period and frequency allocation.

The NTT bid of US$225 million was accepted because the TEC stated that it 'compared favourably with the valuation given by the Chief Valuer and the Financial Advisory Group.'

Furthermore, the report outlined issued raises by NTT such as a compulsory buyback by the GOSL 'in the event of material breach of the agreements by GOSL or a sustained Force Majeure event.' The TEC recommended this issue not be accommodated.

NTT also requested that the CEO have procurement authority for capital expenditure of any amount provided that the expenditure is documented in the approved annual business plan.

The TEC recommended that the GOSL agree to this condition, subject to the CEO acting within procurement guidelines approved and accepted by the Board of SLT.

The last issue of NTT's request that penalties on roll-out targets be calculated on a base year.

The TEC recommended that PERC may reach a negotiated settlement in this regard.
(NG)