Japanese telecom giant NTT DoCoMo has picked up a 26 per cent equity stake in Tata Teleservices (TTSL) for about Rs 13,070 crore ($2.7 billion) or an enterprise value of Rs 50,269 crore ($10.38 billion).
With a subscriber base of 25 million in 20 circles DoCoMo has paid Rs 20,107 per subscriber to acquire the stake. DoCoMo will pick up the equity through a combination of fresh issuance of equity (20 per cent will be through this route) and acquisition of shares from the existing promoters.
In addition, DoCoMo, in accordance with regulations of the Securities and Exchange Board of India, will make an open offer to acquire up to 20 per cent of outstanding equity shares of Tata Teleservices (Maharashtra) (TTML), in which TTSL has a 37% stake, through a joint tender offer along with Tata Sons. TTML has around 5 million subscribers. TTSL and TTML together have a 9.3% market share in the Indian mobile market.
With over 53 million customers, DoCoMo is one of the leading mobile companies in the globe, including 46 million who subscribe to FOMA the world’s first 3G mobile service based on W-CDMA technology in 2001. The company came into the spotlight in 1999, when it launched i-Mode the first mobile internet service challenging the domination of the PC. The Japanese giant is also the first, which has launched a handset with wallet transactions through which consumers can pay their bills like a credit card.
When contacted, a DoCoMo spokesperson in Tokyo also confirmed that the company will have the right to appoint three directors in the TTSL board.
However, she denied reports that they were considering increasing the stake from 26 per cent to over 50 per cent.
However in 2006, NRI businessmen C Sivasankaran had bought an eight per cent stake in TTSL at Rs 1,200 crore at a per subscriber valuation of Rs 15,000.
In the same year Singapore-based Temasek Holdings paid around Rs 1,500 crore to pick up 9.9 per cent equity stake in the company.
Experts say that the Japanese company could buy the stake of the two and increase their holding. When contacted, C Sivasankaran said no offers to buy his stake has been made by DoCoMo.
In times of economic downturn, the price that TTSL is getting for the stake is attractive as compared to the per subscriber market capitalisation of companies like Bharti Airtel and Reliance Communications-whose shares have been battered in the market. The per subscriber market capitalisation of the country’s largest private sector telecom player Bharti Airtel is Rs 14,977, while that of Reliance Communication is Rs 7,420 based on todays market capitalization.
However, DoCoMo has paid much lower than Vodafone, which picked up a 67 per cent stake in Hutchison-Essar in 2006 for an enterprise value of $18.8 billion (Rs 80,840 crore). In other words, it paid a staggering Rs 32,336 per subscriber to acquire the stake.
Experts say that the deal makes strategic sense for both. Says telecom analyst Mahesh Uppal: “DoCoMo brings in significant technology and service experience in 3G, which they have pioneered in the world and puts TTSL in a different league. For DoCoMo, it marks their entry into one of the fastest growing telecom markets and they have got it at a very attractive price when compared to the high valuations of new telcos which do not have any infrastructure or subscriber base”.
Girish Trivedi, deputy director, telecom practice, Frost & Sullivan, South Asia and Middle East said: “This is a positive development for Tatas and is in line with the group’s strategy of foraying into GSM and latter 3G. The move to bring in a strategic investor is a better fit for the company than bringing in a private equity player and it’s a win-win situation for both TTSL and NTT DoCoMo.”
Trivedi also adds that by being privy to the Japanese telcos technology, TTSL would have a competitive advantage in the Indian market which is getting more competitive.
DoCoMo has picked up minority equity stakes in various countries across the globe in Hong Kong, Taiwan, Phillipines, Malaysia and Bangladesh among others. In Bangladesh, it has a 30 per cent equity stake in telecom company TM International. In most of these operations, it does not have a dominant role.