DoCoMo weighs options on 26% stake in Tata Tele

Tatas obliged to buy full stake till July 2014, if certain parameters not met

Japanese telecom giant NTT DoCoMo is assessing the developments in the Indian mobile market before deciding the fate of its 26 per cent stake in the joint venture with the Tatas in unlisted Tata Teleservices Ltd.

Chief Financial Officer Kazuto Tsubouchi said in Tokyo that the firm was considering various options about the stake and Tata Teleservices has been struggling to improve earnings after failing to get a license for more bandwidth. Docomo will also look at the Indian company's earnings and industry consolidation before deciding what to do with the stake it bought for $2.7 billion in 2009, Bloomberg quoted him as saying recently. The CFO did not disclose how much of the stake the firm wants to sell and by when.

According to sources, Tatas are in talks with Telenor of Norway to merge their operations, as and when the government allows mergers and acquisitions (M&As) in the telecom sector. "The query raised is speculative and Tata Teleservices as a policy does not comment on market speculation," said a Tata Tele spokesperson.

As part of the agreement with the Tatas, Docomo has the option to sell its entire stake by July 2014, and the Tatas are obliged to acquire its shareholding if certain operational parameters are not met .

The annual report of Tata Sons, the holding firm of the Tata Group, says: "If certain performance parameters and other conditions are not met by March 31, 2014, should the strategic partner (NTT Docomo) decide to divest its entire shareholding in TTSL, and should the company be unable to find a buyer for such shares, (then) the company is obligated to acquire the shareholding of the strategic partner."

That DoCoMo was not keen to increase its exposure in India became clear when the Japanese company decided in 2012 not to take the option to increase its equity in the company from 26 per cent to 33 per cent at the pre-determined price.

Under the share subscription agreement with NTT Docomo, "Tata Sons and TTSL have jointly and severally agreed to indemnify NTT DoCoMo within the agreed limits against claims arising on account of any failure of certain warranties provided by the Tatas and TTSL to be true and correct in all respects and in respect of specified contingent liabilities".

After the 2G scam and the Supreme Court cancelling the licences of many companies, the valuation of many telecom companies, including Tata Teleservices, came crashing down.

Apart from Docomo, billionaire investor C Sivasankaran is holding 4 per cent stake in Tata Teleservices, which he has been planning to sell since the past year. However, till date, he has not been able to find a buyer due to lack of interest among buyers in telecom companies in India.