Tata Tele share conversion deferred by a year

Docomo arbitration in London delays equity restructuring

The Tata group has deferred its share conversion option in Tata Teleservices Ltd by a year after the talks between the group and its equity partner NTT Docomo on the buyback of latter’s 26.5 per cent stake failed to make headway. The share conversion is important for the Tata group to implement its restructuring plan for the loss-making telecom company, which includes a possible merger with another player.

The CCPS (compulsorily convertible non-cumulative preference shares) Series I will now be converted into shares by early next year, by when the company expects more clarity on the buyback plan, according to a banker. The CCPS were issued by Tata Teleservices in two tranches since January 2014 and it raised Rs 4,500 crore to repay its loans to Indian banks and invest in buying spectrum.

Since January 2015, the Tata group has been locked in arbitration negotiations with NTT Docomo in the London Court of International Arbitration over the valuation of Tata Teleservices shares. Till both the companies come to an agreement, Tata group’s holding company, Tata Sons, cannot increase its stake in the company or merge it with Telenor, with whom it had earlier initiated talks, the banker added.

An email sent to Tata Teleservices on Monday did not elicit any response.

The bone of contention between NTT Docomo and Tatas is the valuation of Tata Tele shares. Docomo is insisting on a Rs 58 a share valuation for Tata Teleservices according to its 2009 agreement whereas Tata Sons is offering only Rs 23.34 a share, according to a valuation done by Price Waterhouse (PW). The total valuation of Tata Tele, according to PW, works out to Rs 11,000 crore compared to the pre-agreed valuation of Rs 27,000 crore for the entire company.

According to a plan prepared by Tata Teleservices, the company is expected to break even in the June quarter as its operating performance improved in FY16 backed by reduction in termination charges, scaling down of operations in loss-making circles, network optimisation after re-deployment of cell sites from loss-making circles, and stringent cost control measures. Tata Tele’s operating margins, which stood at 12 per cent during FY15, improved to 19 per cent during the first half of FY16, according to an analysis by rating firm CRISIL. Another positive for the company in recent times was the sale of its 20 per cent stake in telecom tower firm Viom Networks for Rs 2,800 crore to American Towers announced in October last year. The proceeds of the sale is expected this quarter and the company is planning to use the proceeds to fund its capital expenditure and repay its debt, which touched Rs 32,500 crore as of March 2015.

The Japanese company had earlier threatened to foreclose Tata Sons’ assets if the Tatas fail to honour a commitment to buy back its shares. Docomo had said the foreclosure action with respect to the assets of Tata Sons could be taken by a court in India, after a ruling by the London Court of International Arbitration. The matter is currently pending.