NTT DoCoMo, Japan’s biggest telecom operator by subscribers, has said it will sell its entire 26.5 per cent stake in Tata Teleservices Ltd (TTSL), thus exiting India five years after it entered the market.
The exit comes after the Indian company failed to achieve certain performance targets specified in the agreement between the two companies.
The Japanese company had acquired the stake in March 2009 for $2.7 billion (₹13,070 crore at the then exchange rate).
In case the Japanese company fails to find a buyer for the shares, the Tata group will have to buy them from DoCoMo.
Under the terms of the agreement, DoCoMo is entitled to get at least ₹7,250 crore for the entire stake, which is 50 per cent of its total acquisition price, from Tata Teleservices.
NTT DoCoMo’s decision to exit will add to the woes of the Indian telecom company, which has been struggling under a debt of nearly ₹23,000 crore.
The financial strain had forced the company to undertake a cost-cutting drive, including slowing down investments in non-profitable areas.
TTSL also did not take part in the recently concluded auction to acquire more spectrum. The company has approached the Government to return part of its CDMA airwaves.
“TRAI data show that Tata Tele was perennially under-performing despite being the first to introduce the concept of per-second billing. This ceased to be a differentiator as the competition followed suit,” said Alok Shende, Director and Principal Analyst, Ascentius Consulting.
Time to exit? According to analysts, the only way out for the Tata company is to sell the entire stake to an existing operator.
“NTT DoCoMo’s exit signifies continued headwinds being faced by the challengers in the Indian telecom market. With huge investments required by operators towards renewal and data services spectrum, the consolidation process is expected to accelerate,” said Shobhit Khare, Vice-President, Research, at Motilal Oswal Securities.
TTSL, which provides both CDMA and GSM services along with its listed subsidiary Tata Teleservices (Maharashtra), is currently the seventh largest operator, with about 63 million users as of February-end.
NTT DoCoMo and TTSL did not disclose their future course of action or name any buyer.
In a statement, Tata Sons said that it is “cognisant of its responsibilities”, and will act keeping in mind the interests of all stakeholders. DoCoMo said it was uncertain as to how it would execute the sell option.
The likely suitors Industry sources said that Vodafone could be one of the strong contenders in the race to buy out TTSL. Vodafone is sitting on a $130-billion cash pile from the sale of its US operations and could use Tata Tele’s spectrum to complement its 3G services.
Norway’s Telenor could be another company in the fray as it looks to increase revenue and scale through a pan-India presence. TTSL could also leverage its spectrum through a trade, in which case Sistema Shyam could be interested. But a final picture will emerge only after the Government clarifies the new rules governing spectrum trading and mergers and acquisitions.
DoCoMo has said that it will carry out the stake sale by June, which gives enough time for potential bidders to value the firm.
Tata Teleservices (Maharashtra) shares ended the day up 11.93 per cent, at ₹9.01 apiece, on a weak BSE. Industry analysts said this could be on expectations of another investor coming in.