Tata Comm to sell its Neotel stake to Vodacom for Rs 4k cr

South African unit shares to be sold to British telecom company Vodafone's subsidiary

Tata Communications on Monday said it had sealed a deal to sell its 67.3 per cent stake in Neotel, its South African unit, for seven billion rand (Rs 3,950 crore) to Vodacom, a subsidiary of British telecom company Vodafone. Eight months ago, the two had agreed to explore a potential deal.

For the deal, Standard Chartered Bank was the advisor to Tata Communications.

The deal, to give Vodacom the largest fibre optic network for high-speed net, is expected to be closed by the end of this financial year.

Both the companies said in a joint statement, “The structure of the deal and its commercial terms remain subject to regulatory and competition authority approvals and the parties will be immediately starting the necessary processes.”

Neotel is the second-largest fixed-line phone operator in South Africa, with 152,000 customers and 1,000 employees. While Nexus Connexion holds 19 per cent stake in the company, 12.5 per cent is held by Communitel.

Vodacom Chief Executive Shameel Joosub reportedly told reporters: “They have to settle debt. We are not going to take over existing debt.”

As Neotel had net debt of 4.8 billion rand (as of March), the net proceeds for Tata Communications would be $120-140 million (2.2 billion rand), IDFC Securities said in a report.

But, Tata Communications might use the proceeds to cut its debt of Rs 11,976crore.

Vinod Kumar, managing director and chief executive, Tata Communications, said, “The company is pleased with the outcome of this deal.

“It is in line with our financial objectives, while paving the way for Neotel to improve its value proposition in the South African market.”

Vodacom has said it will fund the acquisition through cash resources and existing credit facilities.

Tata Communications first invested in Neotel in 2006, acquiring a 26 per cent stake for $250 million.

It became the majority shareholder after buying out other financial investors.