DoT seeks details from Tata Comm on debt raising plan

The government is understood to have withheld approval to Tata Communications’ plea to raise debt beyond the permissible limits and has sought to know why it needs those funds.

Tata Communications (erstwhile VSNL) had approached the government, a 26 per cent partner, to raise additional funds by relaxing a provision in the shareholder agreement that puts a cap on the total indebtedness of the company vis-a-vis its net worth.

“TCL (Tata Communications Ltd) has not given enough details of the purpose for which loan is being raised. In view of the non-availability of relevant details on the projects proposed to be undertaken, it may not be possible to give approval for raising the loan even up to the net worth of the company,” the DoT said in an internal note after seeking legal opinion on TCL’s proposal.

Facing severe liquidity crisis, the company had recently stated in a communication to the DoT that seeing through the next financial year (2009-10) would be nearly impossible without raising additional funds.

The company had approached its major stakeholders — the government and Tata Sons — for a rights issue to raise up to Rs 1,000 crore, besides additional debt.

According to sources, the DoT is not in favour of rights issue as it would reduce the government’s stake in the company to below 26 per cent.

Sources said the DoT had written a letter to TCL seeking information about the projects for which additional debts were required and asked the company to submit details.

TCL is planning to deploy a part of the funds for its new submarine cable projects and possible acquisitions in the managed services space, company sources said, indicating that a few targets in the US and the UK were being evaluated in the wake of their lower valuations.

Company officials had earlier said that the fund-raising plans were aimed at creating financial flexibility for new opportunities, as ongoing operations were being funded from regular operating cash flows.

TCL has already made many acquisitions in the last few years, including Tyco Global Network for $130 million and Teleglobe for $239 million.

Recently, it acquired additional 30 per cent stake in South African firm Neotel and entered into a joint venture with a Chinese operator.

The company had announced a $2 billion investment plan last year to grow its submarine cable networks, Wimax and data centres.

Sources, however, pointed out that the company has not raised any equity in the last six years and has funded all its growth and acquisitions through internal resources and debt.

However a Tata Communications’ spokesperson said, “ Tata Communications has not sought to (or asked the Government for approval to) raise additional Rs 5100 crores. The company has sought to raise additional funds to support some of its growth and investment projects and is working with key stakeholders towards the same. Tata Communications has approached its promoters, including the Government of India, for enhancement of borrowing limits to the levels permitted under the Companies Act.”