The Union finance ministry has stepped in to resolve the valuation row between Japanese telecom major NTT Docomo and Tata Sons about Tata Teleservices after the Reserve Bank of India (RBI) referred the matter to the government.
The ministry will take a call whether the agreement between Tata Sons and Docomo on pre-valuation of the telecom company's shares is legal as an RBI rule barred such transactions based on pre-fixed valuations till June 2014. Tata Sons had cited this rule for the delay in buying back Docomo's shares in loss-making Tata Teleservices.
RBI wants the finance ministry to clarify whether the transaction can be cleared. The central bank's move comes in the backdrop of Docomo moving the London Court of International Arbitration against Tata Sons for the latter's failure to honour an agreement to buy back shares at a minimum valuation of Rs 7,200 crore.
According to legal sources, the hurdle was the RBI rule, according to which a 'put' option, when exercised, should be based on the prevailing return on equity when the option is exercised, and not on a pre-determined valuation. As the Tata-Docomo agreement prefixed the buy-back price, it went against the RBI norm. However, in June last year, RBI agreed to link such options to market rates rather than return on equity. The RBI's decision is pending.
When contacted, a Docomo spokesperson declined to comment on the issue. While a Tata Sons spokesperson declined to comment on Wednesday, the Tatas said in a statement on Monday that it had made the necessary application to RBI, and was awaiting a response. "Tata Sons will continue with its endeavour to find an amicable solution," it had said.
A source close to the development said while the arbitration between the Tatas and Docomo could take another year to resolve, if the finance ministry clears the deal, then Docomo could exit early at a pre-fixed valuation of Rs 7,200 crore. This could be a big setback for the Tata group, which invested Rs 2,500 crore in January 2015 in Tata Teleservices and has promised to invest another Rs 2,000 crore in the next two years.
The 2009 agreement between Docomo and Tata Sons had said Docomo could exit at 50 per cent of its purchase price of $2.22 billion or at a fair market price, whichever is higher.