Japan’s NTT DoCoMo may soon increase its holding in Tata Teleservices to 49% from 26% now. The Japanese company will buy the additional stake from its Indian partner at a discount of around 20% on the current valuation, people familiar with the development said. A delegation from DoCoMo is to visit India on April 22-23 to discuss the modalities of the deal and the proposed changes in the shareholding pattern after the stake hike, sources said.
According to covenants under the shareholding agreement signed in 2008, the Japanese telecom operator can increase its stake as it has two call options it can exercise ? in March 2012 and March 2014 ? which gives it the right, but not the obligation, to increase its stake in the Indian venture under certain conditions.
DoCoMo bought its stake in Tata Teleservices for $2.7 billion in 2008.
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.? However, the email query sent to Tata Teleservices in this regard remained unanswered till the time of going to press.
The covenants under the shareholder agreement signed between the two partners allow DoCoMo to raise its stake if its Indian partner (Tata Teleservices) meets certain performance parameters. However, the agreement also allows Tata Teleservices to mandatorily buy out DoCoMo’s entire stake 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.
The $83-billion Tata Group through multiple entities hold about 60% in the telco, in which private equity investor Temasek and serial entrepreneur C Sivasankaran are minority investors with 7% and 6% stake, respectively.
Tata Sons, the single largest shareholder in the flagship telecom venture with a 37.92% stake, has said in its 2010-11 annual report that 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.
But now with DoCoMo set to exercise the first option of increasing its stake in the joint venture, it cannot force a buyback on the Tatas two years later.
In 2008, Tata Sons and other Tata group firms sold a 6% stake to DoCoMo. The remaining 20% was sold in the form of new shares issued by Tata Teleservices.
Tata Teleservices has been finding it tough to make profits over the last several years in a competitive market with low margins. Mobile telephony is the biggest loss-making sector within the Tata Group. The company recently consolidated all its telecom services across the CDMA and GSM platforms under one brand ? Tata DoCoMo ? to drive efficiencies and bring down costs.