Tata Sons, investment holding company of the Tata Group, is working on extending the put option given to NTT Docomo, the Japanese telecom major, for the 26 per cent stake it had bought in Tata Teleservices (TTSL) for Rs 13,070 crore in March 2009.
A put option gives the entity which has it the right (not an obligation) to sell a specified amount of a security at a specified price within an agreed time. Docomo has this right till end-March and it can exercise this if it wants to exit what has been a loss making business.
According to banking sources, Tata Sons infused Rs 2,400 crore of equity in the group laggard through convertible preference shares last week. TTSL reported a 15 per cent rise in its net loss to Rs 4,858 crore in 2012-13, which turned the company’s net worth negative, to Rs 1,862.9 crore.
It has debt worth Rs 26,000 crore and equity infusion by the promoter will help the company raise debt for meeting operational requirements.
“NTT Docomo is here for a long haul and is not looking for a quick exit,” said a person familiar with the development. “The put option can be extended with mutual agreement and efforts have started in this direction,” he said.
The annual report of TTSL says Tata Sons is obligated to buy the stake at the higher end of the fair value or 50 per cent of the subscription purchase price. “For NTT Docomo, there is nothing to gain at this stage from exercising the put option,” the source explained further.
“We do not comment on speculation,” said a Tata Sons spokesperson.
With getting Docomo as a partner TTSL entered the GSM technology based mobile telephony business in 2009. By introducing rock-bottom rates at that point of time it triggered a rate war. Five years later, subscriber intake has slowed and the company has been recording operational losses.
As per the latest data by the Telecom Regulatory Authority of India the company now has just a 5.1% market share with 63 million subscribers. Besides, only 67% of its subscribers are active on the network.
Tata Sons directly owns a 36.17 stake in TTSL. Besides, group firms Tata Communications, Tata Power and Tata Industries respectively own 9.33, 6.97 and 5.46% stakes. Singapore sovereign fund Temasek owns 6.45% stake in the company, through Aranda Investments.
Tata Sons made Tata Teleservices (TTSL) an “associate” last year, changing its earlier status of a subsidiary, even though its holding in the company has not changed. The move would have required Tatas to give up some control over the composition of the board.
This may help NTT Docomo play a larger role in the company’s day to day operation. NTT Docomo has already placed a Japanese team led by Koji Ono as the head of strategy.
There has been speculation about Tata Group planning to exit the telecom business and having talks with Vodafone for stake sale. But with the put option likely to get extended, Tata Group would not be in a hurry to lose its interest in the telecom business that was painstakingly built by former chairman Ratan Tata.