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Business News/ Companies / Tata Teleservices stake sale: NTT Docomo files arbitration request
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Tata Teleservices stake sale: NTT Docomo files arbitration request

Docomo claims Tata Sons failed to fulfil its obligation to find a buyer for its 26.5% stake in Tata Teleservices

In April, NTT Docomo had decided to sell its entire 26.5% stake in loss-making Tata Teleservices, possibly at a big discount, and withdraw from mobile telephony in India. Photo: Hemant Mishra/MintPremium
In April, NTT Docomo had decided to sell its entire 26.5% stake in loss-making Tata Teleservices, possibly at a big discount, and withdraw from mobile telephony in India. Photo: Hemant Mishra/Mint

TT Docomo Inc., a unit of Japan’s Nippon Telegraph and Telephone Corp., has filed a request with a London court for arbitration against Tata Group holding company Tata Sons Ltd, claiming the latter failed to fulfil its obligation to find a buyer for Docomo’s stake in Tata Teleservices Ltd.

In its filing with Tokyo Stock Exchange on Monday, NTT Docomo said it has submitted a request for arbitration with Tata Sons, “pursuant to the shareholders agreement regarding the exercise of Docomo’s option to sell its stake in Tata Teleservices, a telecommunication service provider in India".

The arbitration sought is under the London Court of International Arbitration.

In April 2014, NTT Docomo had decided to sell its entire 26.5% stake in money-losing Tata Teleservices, possibly at a big discount, and withdraw from mobile telephony in India after a five-year struggle that highlighted the challenges in the domestic market.

“Under the terms of the shareholders agreement between Docomo, Tata Teleservices and Tata Sons, Docomo exercised on 7 July 2014 its right (option) to request that a suitable buyer be found to purchase its Tata Teleservices shares for 50% of the acquired price, amounting to 7,250 crore (or 125.4 billion yen), or a fair market price, whichever is higher," Docomo said in its filing.

Japan’s largest communications service provider entered India in March 2009 by acquiring the stake in Tata Teleservices for $2.7 billion after the Indian telco was granted a dual-technology licence that allowed CDMA-based operators to offer rival GSM-based services as well.

Alok Shende, founder and director at Ascentius Consulting, said post 2008 telecom imbroglio, the industry attractiveness to draw international investors to India’s telecom story has waned significantly, particularly for mid-sized players adding “to that effect, the lack of suitors for Docomo is not surprising."

“Yes, we have learnt that Docomo has filed for arbitration. From the outset, Tata Sons has been committed to honouring its obligations to Docomo, and has taken every possible step keeping in mind the interests of all stakeholders and in accordance with law," said a Tata Sons spokesperson on Monday.

“Tata Sons has made the necessary application to the Reserve Bank of India, and is awaiting a response. Tata Sons will continue with its endeavour to find an amicable solution," said the spokesperson.

According to a person close to the development, Tata Sons was trying to find a buyer for Tata Teleservices but could not succeed. Tata Sons buying back the stake is dependent on the approval from the Reserve Bank. However, at present, the guidelines prevent foreign investors from selling stakes in Indian units at a pre-determined price.

The financials of Tata Teleservices were also not encouraging to find a potential buyer. As of September 2014, Tata Teleservices total standalone debt was at 6,116.27 crore.

According to Capitaline data, in the last 59 quarters, the company has posted net profit only once in June 2010 quarter.

“Owing to overhang of uncertainty with respect to Reserve Bank’s approval for this exit, Docomo’s decision to seek arbitration may not lead to any satisfactory outcome. Tata’s decision to not seek RBI’s approval at this point in time and let the case go for arbitration also reflects anticipation of gains from delaying tactics. Long process may frustrate Docomo and that might lead to dilution of the valuation it is seeking from this exit," said Shende.

The deal with NTT Docomo required certain performance targets to be met at the end of every fiscal year, which Tata Teleservices has struggled to achieve as competition heated up in the world’s second largest telecom market. NTT Docomo said on Friday it had planned to sell its stake in June 2014 or earlier if Tata Teleservices failed to achieve these performance targets by the fiscal year ended 31 March 2014. It didn’t specify what these targets were.

The Japanese company had the option of raising its stake to 33% from its current 26.5% in Tata Teleservices after three years, but decided against it after the Tata Group company failed to hit the targets from the third year on.

If NTT Docomo had exercised this option, it would have had the option of further increasing this stake to 49% after five years, on 31 March 2014.

“As also stated by NTT Docomo, it is not possible to predict how events will unfold; however, Tata Sons is cognizant of its responsibilities, and will act keeping in mind the interests of all stakeholders and in accordance with law. Tata Teleservices continues to be an integral part of the Tata Group," Tata Sons had said in a statement in April.

Shares of Tata Teleservices (Maharashtra) Ltd ended at 9.29 on BSE, up 5.6% from previous close while India’s benchmark Sensex Index fell 0.16% to close at 27,842.32 points.

On Tokyo Stock Exchange, NTT Docomo closed at 1,752.5 yen, down 0.88% from its 30 December close.

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Published: 05 Jan 2015, 10:29 AM IST
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