NTT DoCoMo takes 26% in Tata Tele for $2.7 bn

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Mumbai/New Delhi, Nov 12: Tokyo-based NTT DoCoMo, Japan’s largest mobile phone services operator, has acquired a 26% stake in Tata Teleservices Ltd (TTSL) for $2.7 billion, valuing the company at $10.4 billion. In addition, NTT DoCoMo expects to make an open offer to acquire up to 20% of outstanding shares of the listed entity Tata Teleservices Maharashtra Ltd (TTML) through a joint tender offer with Tata Sons.

The deal could not have come at a better time--Tata group companies are facing tight liquidity conditions. Tata group chairman Ratan Tata has already issued a directive to group CEOs to reduce unessential capital expenditure and acquisitions in view of the global liquidity crunch. While the telecom sector is largely unaffected by the slowdown, raising funds for the Tatas was important because apart from the upcoming 3G auction, the company needs to invest $1.5 billion to roll out GSM services.

News reports also said NTT DoCoMo may later seek a majority stake in TTSL. TTSL has 30 million subscribers, making it the sixth-largest telecom company in India. NTT DoCoMo now joins foreign telecom firms Vodafone (UK), Maxis and Telekom Malaysia (both Malaysia), Etisalat (UAE) as well as Telenor (Norway), which are present in India through local joint ventures. TTSL and TTML, both based in Mumbai, are telecom units of the Tata group.

According to analysts, the valuation of the deal is somewhat high keeping current market conditions in mind. But based on TTSL’s subscriber base, if the deal were to have been struck at a time when markets were buoyant, the valuation could easily have been around $15 billion. The enterprise valuation of Hutch in February 2007 was $18 billion and Hutch-Essar’s subscriber base was a little higher than TTSL’s.

“During the current economic downturn, when valuations are going down everywhere, valuations for this deal looks pretty high,” said an industry analyst. “However, India is the fastest growing market for mobile operators, and there is huge scope for growth. Their own saturated domestic markets are making foreign service operators bullish on India,” he added.

Agrees Seiji Ota of BMR Advisors: “Japan, with a population of 120 million people, has 100 million mobile subscribers, making that market quite saturated.” He also said that the deal was valued on the high side, since NTT DoCoMo was bullish on the growth potential of the Indian telecom market.