Japanese telecom operator NTT Docomo is in talks to raise its 26% stake in Tata Teleservices, even as the Indian partner is evaluating a buyback of Docomo?s shares.
Docomo can increase its stake in Tata Teleservices as it has two call options it can exercise ? first in March 2012 and second in March 2014 ? which gives it the right, but not the obligation, to increase stake in its Indian telecom partner under certain conditions. Docomo bought its stake in Tata Teleservices for $2.7 billion in 2008.
The covenants under the shareholder agreement signed between the two partners allow Docomo to raise stake if its Indian partner (Tata Teleservices) meets certain performance parameters. However, the agreement also allows Tata Teleservices to mandatorily buy out the entire stake of Docomo in 2014 if the Japanese company is unable to find a strategic investor or the Indian partner is unable to meet certain performance parameters which include achieving a target subscriber base and subscriber additions every year and attaining minimum revenues and profits for the company in specified time-frame, among others.
Sources say Tata Teleservices has not been able to achieve the milestones till now and chances are remote it could meet those by 2014 due to market conditions and tight margins.
Responding to an email query, an NTT Docomo spokesperson said: ?NTT Docomo cannot comment on any actions it plans to take or the conditions of the agreement.? A Tata Teleservices spokesperson also declined comment.
The Tata Sons 2010-11 annual report said the shareholding agreement with Docomo obligates the Indian conglomerate to buy back shares in the event of the Japanese partner deciding to divest its entire shareholding in Tata Teleservices. In 2008, Tata Sons and other Tata Group firms sold 6% stake to Docomo. The rest 20% was sold in the form of new shares issued by Tata Teleservices.