Tatas to partly dilute Idea stake

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"We have told ST Telemedia and Telekom Malasia that we will not do anything to disturb the management or undermine the value of the group's stake in Idea," the executive said.

Instead, the group will partly dilute its over 30 per cent stake (AIG, the US insurance company, too has a small stake in Idea) through Idea's initial public offer (IPO) which, he said, could be anywhere from eight or nine months to 18 months away.

Cingular's 33 per cent stake is up for sale and the Singapore-based ST Telemedia and Telekom Malaysia Berhad are conducting a due diligence on Idea.

The two companies have made it abundantly clear that any decision to acquire Cingular's stake will hinge on the outcome of the due diligence.

The Tatas and the A V Birla group have in the past made no secret of their desire to exit Idea. The government wants to raise foreign direct investment (FDI) limit in telecommunications from 49 per cent to 74 per cent.

If the limit is raised, Idea's new foreign owners will have the option of buying not just Cingular's equity but also some, though not all, of the Birla and Tata equity and raising their stake to 74 per cent.

If both the Birlas and the Tatas exit Idea and the FDI ceiling goes up to 74 per cent, ST Telemedia and Telekom Malaysia would have to scramble to find another Indian partner to hold 26 per cent of the equity to meet Indian regulatory requirements.

But if the Tatas stay on in Idea, that scenario won't arise. Even if the group's equity stake falls below 26 per cent, Indian public will hold shares adequate to meet the 26 per cent criterion.

A senior AV Birla group executive told Business Standard in the past that the group wanted to move out of telecom.

The Tata group has finally decided that its route to growth in the industry will be code division multiple access (CDMA).

Tata Teleservices is a CDMA services company, while Idea is a global system for mobile services company. Cingular Telecom does not want a presence in India.