Tata cleared for acquisition of DOCOMO stake

14 Jan 2015

India’s central bank has agreed to Tata Group’s proposal to buy back NTT DOCOMO’s 26.5% stake in ailing telco Tata Teleservices (TTSL) at the pre-determined price of INR58 (USD0.93) per share – INR72.5 billion for the entire stake – well above current estimates of the share’s worth, which PricewaterhouseCoopers values at INR23.34, the Business Standard reports. The Japanese firm had expressed its intention to exit the company in April 2014 and under the terms of the 2009 shareholder agreement between DOCOMO and Tata, if TTSL failed to achieve certain performance targets, DOCOMO has the right to require that its share in TTSL be acquired for either 50% of the acquisition price or a fair market price, whichever is higher. DOCOMO’s exit was side-tracked however, by a change in guidelines brought in last year introduced new limits preventing foreign investors from selling states in Indian firms at pre-determined prices. After it failed to find a buyer for DOCOMO’s stake, Tata applied to the Reserve Bank of India (RBI) in November 2014 for permission to purchase the Japanese group’s shares at above their fair value. As previously reported by CommsUpdate, DOCOMO announced earlier this month that it had filed for international arbitration against Tata Group for failing to honour the 2009 agreement.

Commenting on its decision to accept Tata’s proposal, the RBI explained in a statement: ‘Taking into consideration the [current] provisions, we observe the proposed structure is not in line with the extant provisions, as the fair value of shares is INR23.34 a share. However, the larger issue here is of fair commitment in the contracts in relation to an investment and a downside protection of an investment rather than an assured return. Besides, our relationship with Japan in relation to FDI (Foreign Direct Investment) flows is also a matter to be kept in view. Therefore, we are inclined to accept [Tata’s] proposal.’

India, NTT DOCOMO, Tata Teleservices (TTSL, incl. TTML, Tata Tele Broadband)