Tata Communications is close to selling its fixed line telephone business — Neotel — in South Africa to Vodacom.

The two companies had started negotiations in September after Tata Communications took a decision to exit the market last year as part of its strategy to focus on core area of providing international telephony services.

While the deal size is not known, market sources pegged it at $450-500 million. Vodacom is a local player, majority owned by the Vodafone Group.

Major divestment

Tata Communications had acquired 68 per cent stake in Neotel in 2009 after the South African government deregulated the telecoms market. Nexus Connection and Communitel are other investors in Neotel. The stake sale by Tata Communications will be the first major divestment by a Tata Group company after Cyrus Mistry took over as Chairman.

While Tata Communications declined to comment, senior Vodafone executives confirmed that talks were at an advanced stage and an agreement could be reached next week.

For Vodacom, acquiring Neotel would boost its data business in Africa’s largest economy. Neotel owns 15,000 km of high-speed fixed fibre and has access to undersea landing stations. Its data centres should be useful as computing moves to the “cloud”.

The deal will have to be cleared by the Indian Government as it holds a 26 per cent stake in Tata Communications, formerly VSNL.

Sources in the Department of Telecom said it has given in-principle nod to the decision to divest the South African operations but will take a final call after seeing the details.

For Tata Communication, the exit could allow it to stay focussed on its global operations of providing data connectivity through a wide networked undersea cable system. Tata Communications’ share price went up 7.8 per cent on Thursday to ₹297.10 on the BSE.

For the quarter ended September 30, 2013, Tata Communications had reported a net profit of ₹80.36 crore, on the back of growth in managed services and voice offerings. The company had reported a net loss of ₹274.24 crore in the corresponding period in the previous fiscal.

Telecom exit

This could signal the beginning of Tata Group’s exit from the telecom sector as part of Mistry’s plans to pare assets to cut debt. According to sources, the Group may sell its struggling Indian telecom business Tata Teleservices. Several rounds of discussion have been held with players including Vodafone and Sistema Shyam.

According to numbers put out by the Department of Telecom, Tata Tele’s net worth is at minus ₹5,346.65 crore. In comparison, market leader Bharti Airtel’s net worth has been pegged at ₹61,221 crore while new player Reliance Jio has a net worth of over ₹5,000 crore. The Tata Group recently infused ₹2,400 crore into Tata Tele even as its accumulated losses are estimated to be about ₹6,500 crore for 2012-13.

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