Given how Japanese telco DoCoMo is unable to get back even half the investment it made in Tata DoCoMo over seven years ago, it is natural to sympathise with its predicament, more so since Tata Teleservices had agreed that if certain operational milestones were not achieved, DoCoMo’s shares would be bought back at half the price. Getting back the money, even after the London Court of International Arbitration (LCIA) award, however, is not in the Tatas’ hands, so filing for attaching of assets in London as DoCoMo is doing cannot help—Corus and JLR are owned by Tata Steel and Tata Motors which have shareholders other than Tata Sons, so their assets can’t be touched; Tata Sons itself has few overseas assets.
The problem here is manifold. The FIPB approval in March 2009 was categorical that ‘issue/valuation/transfer of shares shall be as per SEBI/RBI guidelines’ and, in October 2004, RBI had said that share sales for an unlisted firm must be based on a price linked to the EPS or NAV or on the basis of an independent valuation—this gave a price substantially lower than the half-price in the Tata-DoCoMo agreement. If both firms went ahead despite this, it was because they felt the policy would change as India’s forex position got more comfortable or they felt RBI would waive the condition as it had the discretion to do so under FEMA. Indeed, the Tata affidavit in the Delhi High Court cites DoCoMo testimony during the arbitration that suggests it was aware of this; para 171 of the award even says ‘the Tribunal expresses no view, however, on the question whether or not special permission of the RBI is required before Tata can perform its obligation to pay Docomo damages in satisfaction of this award’. Which is also why, when Tatas wrote to RBI again asking for permission to pay DoCoMo—this time, based on the arbitral award—RBI turned this down and added, ‘it is clear that LCIA is also cognizant of the fact that the SHA (shareholders agreement) was structured in such a manner that its compliance would entail contravening the provisions of FEMA’.
Instead of fighting the Tatas, DoCoMo would do well to jointly represent to the Indian government—including through the Japanese government—that it is important to understand the spirit of the FEMA restrictions on share sales. These restrictions were put to ensure debt—which RBI keeps a limit on—does not masquerade as equity by way of assured buyback deals; but any transaction that seeks to get back half the value cannot possibly be debt. Given how important Japan is to India, and the raw deal several Japanese investors have got—Daiichi Ranbaxy comes to mind immediately—the government would do well to ask RBI to make an exception.