Mumbai: Tata Teleservices Ltd (TTSL), which has written off Rs5,141.28 crore, will write off Rs1,648 crore more as it goes ahead with the third leg of its capital restructuring programme which comes in the wake of a November announcement by NTT DoCoMo Inc. that it was paying $2.7 billion (Rs13,070 crore) for a 26% stake in the company.
India’s sixth largest mobile and wireline operator said in a recent petition to the Delhi high court related to its restructuring plan that it will use gains of Rs1,648.74 crore from revaluing its equity investment in listed subsidiary Tata Teleservices (Maharashtra) Ltd, or TTML, to write off more book losses and unabsorbed depreciation. TTSL isn’t listed on the exchanges.
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The company has till 15 March 2009 to complete this restructuring.
All such schemes have to be approved by high courts, according to India’s Companies Act.
TTSL has explained in its petition, which has been reviewed by Mint, that its investment in 714.3 million TTML shares, which was valued at Rs387.05 crore or about Rs18 per share, was in September revalued at Rs28.5 per share, based on six-month average market prices on the National Stock Exchange (NSE).
Following the revaluation, this investment has grown to Rs2,035.80 crore, an appreciation of 426%.
Mint couldn’t ascertain when TTSL made this investment in TTML, which was earlier known as Hughes Ispat Ltd.
“We will not be able to comment on this at the moment, since one of the two companies you are referring to is listed,” Rajeev Narayan, vice-president, corporate affairs, and spokesman, TTSL, said in an email response.
He also denied that the revaluation is a prelude to a merger between TTSL and TTML. “There is no plan at all whatsoever to do any such thing.”
According to TTSL’s petition, it has received an approval for the restructuring scheme from 19 of the 33 equity shareholders accounting for 99.75% of the company’s shareholding.
TTSL’s earlier plan had envisaged halving its equity capital to Rs3,173.57 crore and using Rs1,967.71 crore from its share premium account to write off past losses and unabsorbed depreciation.
TTSL’s losses increased from Rs8,547.49 crore as on 30 September 2007 to Rs9,177.17 crore as on 31 March.
Shares of TTML closed at Rs20.40 each on Monday on the Bombay Stock Exchange, up 1.24% from their previous close, but 28.42% lower than the Rs28.50 per share price set for the revaluation exercise in end-September.
As on 30 September, TTSL held a 37.65% stake in TTML with associates such as Tata Sons Ltd, the group’s main holding company, holding the remainder of the combined 66% stake held by promoters, according to data on BSE’s website.
TTSL’s restructuring plan coincides with a mid-November move by NTT DoCoMo Inc., Japan’s largest mobile operator with 53 million subscribers, which agreed to pay $2.7 billion (Rs13,070 crore) for a 26% stake in the company.
One expert said TTSL’s move could have been prompted by this investment.
“Any balance sheet clean up like this one enhances the dividend paying ability or potentially accelerates dividend payments. With the new investor coming on board, this could be a reason for the restructuring,” said Vivek Gupta, partner, BMR Associates, an audit firm.
The company had sought shareholders’ approval on 8 September for the capital restructuring, but the last leg to revalue its TTML investment had by then been included in its petition before the Delhi high court.
TTSL, which services 30.2 million subscribers through a network based on wireless technology standard CDMA, said in a recent presentation that its subscriber base was growing at a compounded annual growth rate of 80%.
The company’s subscriber base represents 9.2% of the 325.7 million mobile users in India.
TTSL reiterated in its petition that “no one will be prejudiced if the proposed scheme of arrangement and restructuring is sanctioned and the sanction of the scheme will benefit the company and its shareholders and will have no adverse impact on the creditors of the company.”
TTSL has also maintained that the “reduction in capital does not involve any financial outlay/outgo” and is “only in the nature of a book entry.”
Experts Mint spoke with for a 13 October story said TTSL’s move to sell a 26% stake to DoCoMo could be an effort to right-size its balance sheet.
TTSL has incurred substantial losses on account of the long gestation period of telecommunication projects, which typically involve high capital expenditure in the initial phase.
The firm attributed the losses partly to the launch of telecom operations at different periods in various circles in India.
TTSL’s exercise to right-size its balance sheet began when it approached its 33 shareholders to reduce Rs3,173 crore from the paid-up capital by halving the equity, and to adjust Rs1,967.71 crore from its share premium account by reducing this from the accumulated debit balance in its profit and loss account and unabsorbed depreciation.
The company explained in its petition that the move to cancel part of its share capital, which was already lost on account of accumulated losses, was to have a balance sheet that “depicts a more realistic capital employed which is fairly represented by the value of productive assets on the balance sheet.”
An analyst with a domestic brokerage who did not wish to be identified said he was at a loss to explain the logic behind TTSL’s restructuring, except that it could accelerate the company’s move towards profitability.
TTSL has also secured the government’s approval to offer services based on the GSM technology standard, a rival to CDMA.
Logically, the money invested by NTT DoCoMo would go towards expanding into the GSM segment, which is dominated by larger companies such as Bharti Airtel Ltd and Vodafone Essar Ltd with subscriber bases of 80.2 million and 56.7 million, respectively, the analyst said, adding that he expected the Japanese firm’s investment to come on completion of the capital restructuring exercise.