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Tata DoCoMo JV set to end as Japanese partner heads for exit door

Apr 26 2014, 13:52 IST
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NTT DoCoMo, Japan's top operator of mobile phone services, invested 266.7 billion yen in Tata Teleservices in 2009. (Reuters) NTT DoCoMo, Japan's top operator of mobile phone services, invested 266.7 billion yen in Tata Teleservices in 2009. (Reuters)
SummaryNTT DoCoMo wants to sell 26.5 pct stake in Tata Teleservices it had bought for $61 bn in 2009-2011.

Japanese telecom firm NTT DoCoMo Inc today said it will exit its loss-making mobile phone joint venture with Tata Group by selling its 26 per cent stake.

Japan's largest wireless carrier by subscribers wants to sell the entire 26.5 per cent stake in Tata Teleservices it had bought for 266.7 billion yen (USD 2.61 billion) in 2009 and 2011.

Tata Group is likely to buy the stake.

In a press statement, DoCoMo said "its board of directors resolved today to exercise option for the sale of the company's entire stake (124.9 crore shares, or about 26.5 per cent stake) in Tata Teleservices Ltd (TTSL)."

Under the March 2009 agreement between DoCoMo, TTSL and Tata Sons Ltd - Tata Group's holding company, the Japanese firm "holds the right to require that its TTSL shares be acquired for 50 per cent of the acquisition price, which amounts to 72.5 billion Indian rupees (or 125.4 billion yennotice1) or a fair market price, whichever is higher, in the event that TTSL fails to achieve certain specified performance targets."

"In the event that TTSL fails to achieve these performance targets by the end of the fiscal year ended March 31, 2014, DOCOMO plans to exercise the above-mentioned right in or before June 2014," the statement said.

DoCoMo expects to sell its TTSL shares in accordance with the agreement.

DoCoMo heads for India exit as competition, regulation take toll

(Reuters) Japanese telecoms giant NTT DoCoMo Inc said on Friday it was seeking to sell, likely at a deep discount, its stake in a loss-making Indian joint venture with diversified conglomerate Tata Group, bowing out of the world's second-biggest mobile phone market.

DoCoMo's exit from India after just five years highlights the difficulties both foreign and local telecom companies face in a fiercely competitive market, where carriers rely on cut-throat pricing to attract subscribers.

DoCoMo paid 266.7 billion yen ($2.61 billion) for a 26.5 per cent stake in Tata Teleservices in 2009. Under the joint venture agreement with Tata, DoCoMo could sell its stake for about half of what it originally paid for the stake or at a "fair market price", whichever was higher.

"We invested in India because at the time we saw excellent growth prospects in emerging countries and we wanted to be involved there," DoCoMo Chief Executive Kaoru Kato Kato told reporters after the company posted its earnings for the financial year ended March 31.

"We came to this decision (to sell) because the growth we've seen in five years is not what we expected," he said.

Tata Group and Tata Teleservices officials were not immediately available to comment.

Kato blamed the joint venture's poor performance on a delay in introducing 3G mobile networks that can carry high-margin data services, as well as an alleged corruption scandal that saw several companies, including Tata Teleservices, losing some or all of their zonal operating permits.

DoCoMo is one of several Japanese companies struggling with their investments in India, a rapidly growing market these firms had hoped would offset the effects of an ageing, and declining, population at home.

Pharmaceutical company Daiichi Sankyo Co agreed this month to sell its stake in drugmaker Ranbaxy Laboratories Ltd to India's Sun Pharmaceutical Industries Ltd after quality glitches led to its drugs barred from the United States, halving the value of its initial investment.

Japanese carmakers including Toyota Motor Corp and Suzuki Motor Corp 's unit Maruti Suzuki India have also experienced labor unrest at their factories in India, leading to production losses.

LAGGING TARGETS

DoCoMo, Japan's biggest telecom network by subscribers, said it would exercise the option to sell its stake by June if Tata Teleservices' financial results for the fiscal year that ended March 31 failed to meet targets specified under an initial shareholder agreement.

DoCoMo did not specify the targets, and unlisted Tata Teleservices is not obliged to publicly disclose its results. A DoCoMo executive who declined to be named told Reuters Tata Teleservices was not expected to meet the targets, but also declined to specify what they were.

Tata is due to reveal its finalised results to DoCoMo within weeks, the executive added, declining to be named because of the confidentiality of the matter.

New Indian rules do not allow a telecommunications carrier with operations in India to buy a stake in a rival carrier, although two carriers can merge their operations.

Some Indian media reports have said Vodafone is a likely suitor for Tata Teleservices. Any deal, however, would require Tata Teleservices to be merged with Vodafone's Indian unit, with Tata Group either fully exiting the business or taking a minority stake in the merged entity.

Singapore state investor Temasek and Indian businessman C. Sivasankaran also own small stakes in Tata Teleservices.

Tata Teleservices expanded into lucrative GSM-based mobile phone services after the deal with DoCoMo and amassed subscribers by offering a cheaper per-second billing plan, but it subsequently failed to build on its initial success and has lost market share in the past two years.

It currently ranks seventh in terms of subscriber numbers among the 12 firms that operate in India.

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