Tatas to inject Rs 12,000 crore more in telecom arm

Move to help Tata Tele prepay debt, reduce interest cost

The Tata group’s holding company, Tata Sons, has decided to infuse Rs 12,000 crore more into its telecom arm in the current financial year, so that it can repay its debt and improve its financial metrics. This follows Tata Sons’ investment of Rs 2,000 crore into Tata Teleservices in financial year 2016-17.

The investment was approved by the board led by Group Chairman N Chandrasekaran, who has chalked out an elaborate plan to tackle the loss-making businesses of the Tata group. Recently, Tata Power offered to sell a 51 per cent stake in its loss-making Mundra project to the Gujarat government for Rs 1. Similarly, Tata Motors is learnt to have decided to phase out its small car Nano in the domestic market, and Tata Steel Europe is in advanced talks to merge its European operations with Thyssenkrupp. 

The investment in Tata Teleservices will be made either in the form of equity or compulsory convertible preference shares, which would result in Tata Sons’ stake in the unlisted company climbing above 90 per cent on a fully diluted basis. This would also include Tata Sons buying back 26.5 per cent stake from its former equity partner NTT Docomo. 

As on March 31, 2017, the combined debt of Tata Teleservices and its listed subsidiary Tata Tele Maharashtra stood at Rs 34,089 crore, excluding deferred payment liabilities worth almost Rs 8,000 crore to the Indian government for spectrum. The fund infusion was necessary as Tata Teleservices’ net worth eroded by over Rs 11,650 crore following an aggressive six-month free voice and data plan offered by Reliance Jio.

Analysts said the operating performance of all telecom companies was expected to remain weak due to intensifying competition in the sector. However, Tata Sons is likely to provide timely support for debt servicing and funding operating losses as in the past, said an analyst.

E-mail queries sent to Tata Teleservices and Tata Sons remained unanswered. 

Tata Tele announced a loss of Rs 2,839 crore for FY17, compared to a loss of Rs 2,023 crore in the previous year. It also reported a decline in turnover from Rs 10,708 crore in FY16 to Rs 9,667 crore in FY17. 

Analysts said with lower interest costs, Tata Teleservices would be in a better position to merge its operations with a rival. No buyer would be interested in taking over a company which has huge financial liabilities to banks, they pointed out. 

While the parent company would invest more equity, bankers said the company had also asked banks to extend the maturity of its loans to 20 years in line with the tenure of its licences and spectrum. Besides, Tata Teleservices has sought a loan of Rs 5,000 crore to meet its capital expenditure.

The company is also planning to sell its stake in telecom tower company Viom Networks to bring down its debt. If this entire plan is successfully implemented, Tata Teleservices would perhaps manage to get out of its financial crisis, according to analysts.