The regulatory environment has emerged as the biggest risk factor for Indian telecom firms. This is best illustrated in the case of the country?s sixth largest mobile operator, Tata Teleservices Ltd (TTSL), which will have to restructure its $2.7-billion deal with Japan?s NTT DoCoMo if the government accepts the Trai proposal that bars promoters of new telecom licensees from selling their equity for three years.
The Telecom Regulatory Authority of India?s proposal is based on circle-specific licence, and since TTSL was granted licence for three cicles?Jammu & Kashmir, Assam and Northeast in 2008, it also comes under the ambit of the proposed lock-in period.
Ironically, the deal has been approved by the Foreign Investment Promotion Board and the Cabinet committee on economic affairs.
Since DoCoMo was picking up a 20% stake in TTSL through a fresh issue of shares and 6% from existing shareholders like Tata Sons, Tata Steel and Tata Power, the deal would either have to be restructured or the Tatas have to pay 50% proceeds to the government.
Prashant Singhal, telecom industry leader, Ernst & Young, told FE that if the government were to accept the Trai recommendation, TTSL would have to restructure the deal or pay the government. ?The biggest risk for telecom companies in India is the regulatory environment. The companies don?t know what the regulatory path would be for the next two to three years,? he said.
Analysts agree that it?s unfortunate that TTSL would have to rejig the deal after all clearances were obtained, though the lock-in was for entirely a different set of operators for different reasons.
The Trai proposal, submitted to the department of telecommunications (DoT) last week, while bars promoters from selling their equity for three years from the date of issue of a licence, allows them to raise funds by issuing fresh shares. If promoters want to sell their equity, they can do so upon meeting the rollout obligations, but 50% of the proceeds have to be ploughed back into the company and the remaining 50% should be paid to the government. This has been done to stop companies from making unearned gains as the licence and spectrum given to them were not at market-determined prices.
Sources said that if the government accepts the Trai proposal in its entirety, the 6% dilution by promoter companies of TTSL would have to be restructured. Sources said that in its filing with DoT for the licence, the company had shown Tata Sons as the promoter and other group companies like Tata Steel as existing shareholders.
According to indications, to restructure the deal to come out of the regulatory ambit, Tata Sons, which holds around 30% in the company, would not dilute its TTSL stake by 1.8%?its proportionate share of the 6% stake sale?and would rather distribute this among other group firms.
The proposal, a brainchild of communications & IT minister A Raja, was in response to allegations of loss to government exchequer when new licensees like Unitech Wireless and Swan Telecom sold stakes to foreign telecom firms Telenor and Etisalat for valuations up to $2 billion. However, since the promoters of these two firms did not sell their equity they remain unaffected.
