Mumbai: Tata Communications Ltd agreed to sell a 74% stake in its data centre business to a unit of Singapore’s Temasek Holdings for $634 million (approximately 4,260 crore).

The deal, which has been in the works for almost a year now, will see the transfer of majority ownership in a business that runs 14 data centres in India and three facilities in Singapore.

As part of the deal, Singapore Technologies Telemedia (ST Telemedia) will acquire the controlling stake in Tata Communications Data Centre Pvt. Ltd, the company said in a statement on Thursday. Tata Communications will continue to hold the remaining 26%.

The process to sell a majority ownership in the data center business was initiated last year when the company hired Jefferies Llc. to advise on the sale, Mint reported then. Tata Communications had separated the data centre business into a wholly owned unit effective 1 March 2014, perhaps in preparation to bring in a partner.

Tata Communications is one of the largest players in the data centre business in India, with facilities across most commercial cities, according to the company’s annual report for 2014-15. It also owns over 1 million square feet of data centre and co-location space across 44 global locations and has eight partner sites across Australia, Malaysia, Germany and the Netherlands, according to the report.

It’s this network that ST Telemedia now gets access to.

“With this acquisition, STT GDC will further expand and strengthen its global data centre network to span four geographies, including strong bases in two of Asia’s largest growth markets—India and China," ST Telemedia said in a statement.

Vinod Kumar, managing director and chief executive officer of Tata Communications, said the stake sale gives the company an opportunity to redeploy capital in other areas.

Tata Communications, which owns the world’s largest undersea fibre link, had total debt of 9,595 crore as of 30 September, according to data compiled by Bloomberg.

The Indian data centre infrastructure market is expected to grow 5.2% to $2 billion in 2016, according to a report published by researcher Gartner Inc. in November.

In October, International Business Machines Corp. (IBM) had opened its first public cloud data centre in Chennai as part of expanding its cloud solutions footprint in India. Last year, IBM had opened its first private data centre in Mumbai to meet demand for cloud services from sectors such as banking and financial services and telecommunications.

In September, Microsoft established cloud data centres in India across three sites—Pune, Chennai, and Mumbai. Companies such as Oracle and Amazon have also announced their plans to set up cloud data centres in India.

“Against the backdrop of an increase in e-commerce activities, there is interest from corporates in buying third-party data centres, causing an increase in deal activity in this segment," said a Mumbai-based analyst, requesting anonymity as he is not allowed to speak to reporters.

Shares of Tata Communications fell 1.16% to 442.50 on Thursday, while the benchmark BSE Sensex shed 1.19% to close at 25,399.72 points.

Separately, the company is also scouting for another buyer for its South African network operator Neotel Pty after a proposed deal with a unit of Vodafone Group Plc. fell through in March following almost two years of regulatory tussles.

The deal to sell a majority stake in Tata Communications’ data centre business is the latest in a series that the Indian conglomerate is pursuing as Cyrus Mistry, chairman of parent Tata Sons Ltd, seeks to pare debt, cut costs and boost the profit of group companies.

Tata Steel Ltd is currently in the process of selling its UK assets, which it acquired as part of its purchase of Corus Plc. in 2007. Those assets are being sold because of heavy losses that Tata Steel has incurred. On Wednesday, another group unit, Indian Hotels Co., said it will look to sell its Taj Boston hotel, at a price not lower than $125 million.

The Tata group is not alone in trying to shed assets. A number of Indian companies are selling to either reduce debt or to sharpen focus on their core businesses by exiting non-core units.

“There are several aspects in divesting the non-core assets by Indian corporates—such as the company wants to focus more on the profitable business and generating cash flow. Also, they may not aspire to invest in future growth of the said businesses, and using the energy and capital for the growth of other profitable businesses," said Raja Lahiri, partner, advisory firm Grant Thornton. Lahiri was not commenting specifically on the Tata group or its recent transactions.

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