Delay in sell-off of Tata Teleservices' enterprise biz to hit its valuation

Almost eight months after N Chandrasekaran, chairman, Tata Sons, sealed a deal with Sunil Bharti Mittal's Airtel for Tata Tele Services' consumer mobile business and also took a strategic call to exit from its enterprise business, the pain is far from over.

The fate of both – a formal closure of the deal with Bharti and sale of the enterprise business is tied to approvals from Department of Telecommunications (DoT). The delay, particularly in the sale of the enterprise business, has been eroding its valuation. With the entry of Reliance Jio, which announced its entry into the enterprise solutions segment in January, the delay can be further damaging, said sources. Tata Sons spokesperson declined to comment.

Tata Sons has been keen on selling Tata Teleservices' enterprise business to Tata Communications, but this requires a go-ahead from the DoT as it owns 26 per cent stake in Tata Communications. As per sources, Tata Sons is likely to infuse Rs 30 billion in the loss-making Tata Communications as equity and that amount will be used as pay-out for the enterprise business of Tata Teleservices. However, the issue is not around buying of the enterprise business but about the various dues owed by Tata Teleservices to DoT in the form of licence fees and spectrum charges to the tune of Rs 100 billion to 150 billion.

In January, Tata Sons had also received $1.2 billion dollar bid from of Tata group executives, led by head of international operations Mukund Rajan, for Tata Teleservices enterprise business. They were being backed by a consortium led by TPG Capital and a large sovereign pension fund in their bid for the assets of the telecom company. "Both the options (Rajan's offer and selling the business to Tata Communication) is still under consideration," said another source. 

"It (Tata Teleservices's enterprise business) is not some "family silver" that the group may want to hold on to," said another source adding that the business needs a major overhauling and fresh investments. Moreover, with two of its biggest customers Reliance Communications and Aircel having gone bankrupt, the valuations of the business will be hit. "The sooner it is done, the better," he said.

Meanwhile, the closure of the deal with Bharti Airtel, which is in the process of getting approvals, is also not without challenges. As part of the deal the Sunil Mittal-led firm and Tata Sons, Bharti will acquire the mobility business of Tata Teleservices on a cash-free and debt-free basis and Tata Sons will own all the liabilities and dues. However, as many of the dues including spectrum charges and licence fees are sub-judice, Tata Sons may not want to pay them to DoT before a final verdict from the courts.

But as Airtel will not take ownership of any liability, Tata Teleservices have to either clear the dues or give some kind of guarantees to DoT. The clearance of dues may also be a pre-condition for the acquisition of the enterprise business of Tata Teleservices by Tata Communications. At the time of Tata Teleservices-Airtel deal announcement, Tata Group had said that it would take additional debt within Tata Sons and take care of all liabilities, which would be refinanced in some form and shape.

The Tata Teleservices-Airtel deal has been approved by the competition commission of India (CCI) and market regulator SEBI and NCLT is reviewing the application. For Tata Teleservices Maharashtra Ltd, the application was filed on April 10 in NCLT and for Tata Teleservices, the date was May 17. After the NCLT approval, the deal has to be approved by DoT. 

Months after the deal, Tata Teleservices has to meet operational expenses, albeit smaller ones. Airtel is operating the network of Tata Teleservices and the customers have also been shifted as part of an intra-circle roaming agreement between the companies. However, Tata Teleservices still has to pay salaries to the employees who can’t be shifted to Airtel before the deal is approved by DoT.

What’s the problem

• Tata Sons is likely to infuse ~30 bn in loss-making Tata Comm 
• The holding company of Tata Group has been keen on selling Tata Tele’s enterprise business to Tata Communications but this requires a go-ahead from DoT, which owns 26% in Tata Comm
• With Reliance Jio announcing its entry into the enterprise solutions segment in January, there would be more damage from the delay
• In January, Tata Sons had got a $1.2-bn bid from Tata Group executives for Tata Tele’s enterprise business