Tata Tele may look to merge with rival, sell Viom stake

Needs Rs 2,000 cr more in 2 years to repay debt

With Japanese telecom company NTT Docomo announcing it would exit Tata Teleservices by June, the options before Tatas include merging its operations with a rival, selling a stake in telecom tower company Viom Networks, or exiting the telecom business.

Bankers say the Tatas are looking at merging Tata Teleservices with Vodafone or with loss-making Aircel and Norwegian telecom group Telenor. But no comments have been made by any company.

In an interview to this newspaper in October, Tata Teleservices' managing director N Srinath had said he was open to all options, including merger with a rival.

It is vital Tata Teleservices raises funds fast. Tata Sons will require about Rs 7,250 crore to buy back the 26.5 per cent stake of co-promoter Docomo, according to an agreement signed in 2009. Tata Teleservices itself will need another Rs 2,000 crore in two years to pay its creditors.

This is after Tata Sons invested Rs 2,500 crore in January in Tata Teleservices to repay its loans. Till date, the Tatas have invested Rs 25,947 crore in Tata Teleservices.

Another option for Tata Teleservices is to sell its stake in telecom tower firm Viom Networks, valued at $4 billion. With 42,000 towers, Viom Networks has just turned the corner and is looking to list its shares abroad in this financial year. The Tatas have a 54 per cent stake in Viom Networks while Srei Infrastructure owns 18 per cent. The rest is owned by a clutch of private equity investors.

According to provisional figures for the first nine months of 2013-14, Viom Networks reported a total operating income of Rs 3,764 crore, up from Rs 3,669 crore in the same period of the previous year, and a net profit of Rs 105 crore against a net loss of Rs 90 crore in the nine months of 2012-13. The stake sale in Viom Networks will come in handy for Tata Teleservices to meet its liabilities.

Though its financial health is improving, it will be a long time before Tata Teleservices churns profits. For the nine months ended December 31, the company, on a consolidated basis, reported a net loss of Rs 3,485 crore on an operating income of Rs 7,895 crore (see chart). In the 2012-13, the net worth eroded by Rs 1,863 crore and it breached financial covenants with banks.

But Srinath has taken a number of steps to improve performance. Tata Teleservices redeployed resources from loss-making telecom circles to those with a higher growth potential. It cut costs by switching from CDMA to GSM mobile services. The company has brought down its staff strength by 20 per cent and marketing expenses by 40 per cent.

The biggest challenge before Tata Teleservices is to improve its financial metrics as borrowed capital expenditure has bloated debts to Rs 24,700 crore as on December 31. Over the next two years, Tata Teleservices will spend Rs 1,500 crore to expand its network, to be partly funded by debt.