Litigation, sagging financials to hit Tata Tele, R-Com merger talks

Tata Teleservices' huge debt is around Rs 30,000 crore

Any proposed merger between Tata Teleservices and the group of companies lead by Reliance Communications is likely to be difficult.

According to reports, the Tata company has been approached to join the proposed combination comprising Reliance Communications, Aircel and MTS. However, the Supreme Court is hearing a petition against Aircel in the 2G case, and till the apex court does not dispose of the case, the fate of the proposed combination, even without Tata Teleservices in the mix, is uncertain.

Reports of the proposed merger emerged after Tata Teleservices' talks with Vodafone to merge their operations failed. 

On February 3, the Supreme Court had said that Aircel's assets would be seized if Malaysia-based Maxis and its owner did not appear before 2G trial court in four weeks. Further, the court said that all earnings of Aircel would be restrained and that the prohibition would become enforceable if Maxis, its promoter Ananda Krishnan and one of its directors, Augustus Ralph Marshall, failed to accept court summons and show up. The bench also stayed selling and trading in the 2G spectrum under consideration with Reliance Communications.

Apart from the ongoing litigation, the financials of Tata Teleservices itself are in a mess. The company needs fresh capital worth Rs 10,000 crore in the next financial year to keep its operations going. Besides, Tata Sons will have to pay another $1.2 billion to NTT Docomo to buy back its 26.5 per cent shares in the company. The matter is currently under litigation. Till both these financial issues are cleared, no other company would be interested in merging their operations, analysts have said.

According to media reports, Reliance Group Chairman Anil Ambani has approached N Chandrasekaran, who takes over as Tata Sons' chairman on Tuesday, to discuss the merger. The combination would create the country's third-largest wireless carrier, assuming Vodafone and Idea merge, the report said.

However, the report added that no deal has been finalised and obstacles include Tata Teleservices' huge debt, which is around Rs 30,000 crore. The industry is going through a churn with Telenor also initiating talks to either join Reliance Communications-Aircel or be acquired by Bharti Airtel Ltd.

Analysts have said that Tata Sons might not be interested in investing more money into the company as it has already invested close to Rs 4,500 crore in the last few years to keep the company afloat and to bid for spectrum.

With a new leadership in place at Tata Sons, fund infusion in Tata Teleservices would be critical for the company to fight cut throat competition from Reliance Jio and from the other three large players — Bharti Airtel, Vodafone and Idea Cellular. Earlier, Tata Teleservices had initiated talks with Vodafone for a possible merger, but the talks could not make headway as the British telecom giant wanted to focus on its possible initial public offer.

Tata Teleservices is already facing multiple issues, including ongoing litigation regarding 2G dual technology, delisting of Tata Tele Maharashtra Ltd, contingent liability of several thousand crore with respect to the contracts entered with Viom, and outstanding litigation with Docomo. This would come in the way of closing any deal with a rival for a merger. In fact, the non-disclosure of the put option in the Docomo transaction to the Foreign Investment Promotion Board has been interpreted as a default by Tata Sons and Docomo, according to a petition filed by Mistry with the National Company Law Tribunal.  One of the options on table was to file for bankruptcy by the company but this option was ruled out by the Tata group due to reputational damage to the Tata group as well as negative reaction from the banks, according to Mistry’s petition. Mistry has warned that the Tata group faces a potential write-down of $5 billion if the company shuts its operations or merges its operations.