Tata Teleservices plans to invest Rs 4,000 cr in listed arm

This is to meet Tata Teleservices (Maharashtra)'s lender commitments

Loss-making Tata Teleservices is planning to invest an additional Rs 4,000 crore in its listed arm, Tata Teleservices (Maharashtra) (TTML), so that the latter can meet lender commitments.

Tata Teleservices would raise the funds from its own shareholders, mainly Tata Sons, by way of issuing compulsorily convertible non-cumulative preference shares or optionally convertible non-cumulative preference shares on rights basis.

In its annual report for the financial year 2016-17 (FY17), Tata Teleservices had said that as on March 31, 2017, TTML had breached certain covenants with its lenders, which may result in loans being recalled by the lenders. “Tata Sons have provided a support letter to TTML for fund infusion, directly or indirectly through TTSL, for the repayment of such loans,” the company said.

The infusion would come as a big help to TTML, which made a loss of Rs 2,357 crore on revenues of Rs 2,761 crore in FY17. The infusion has come in the backdrop of Tata Teleservices asking banks to restructure its loans worth Rs 29,000 crore, following erosion of its net worth by Rs 11,650 crore in FY17.

TTSL and TTML have asked banks to extend the maturity of loans to 20 years for repayment — in line with the life of license and spectrum loans. The company has also sought an additional loan of Rs 5,000 crore to meet its cash flow and capital expenditure requirements.

The Tatas are also planning to sell their equity stake in Tata Teleservices and were reportedly in talks with Bharti Airtel for a possible merger. However, according to insiders, the deal fell through as Bharti was not interested in taking over the firm’s huge liabilities.

One of the other ideas, presented by investment bankers, is to merge Tata Teleservices, Tata Communications and Tata direct-to-home TV business, and then sell the company. This would get them a good valuation. However, no decision has been taken on this as yet.

Bankers said Tata Teleservices would have to come out with a solution to its woes as the company’s net worth has eroded by Rs 11,650 crore in FY17 — highest in the Indian telecom sector — on rising finance costs. The company announced a loss of Rs 4,617 crore in FY17, compared with a loss of Rs 2,409 crore in FY16. This is bad news for its promoter, Tata Sons, which would have to keep investing in the company’s equity so that it can meet its liabilities.

Thanks to the free services offered by Reliance Jio, the company’s turnover declined to Rs 9,666 crore in FY17 from Rs 10,708 crore in FY16.

Bankers said the company’s debt of Rs 28,766 crore would continue to haunt the company and its promoters would have to keep investing in its equity so that it can meet its liabilities.