Tata Sons Sells 26% Telecoms Stake to DoCoMo. Chairman Concerned Over Financing
Japanese mobile phone major NTT DoCoMo acquired a 26% stake in Tata Teleservices for Rs. 13, 311 crores ($ 2.7 billion) according to a joint statement issued by both companies on Thursday. NTT will along with Tata Sons also be making a tender offer to buy 20 per cent of the outstanding shares of Tata Teleservices (Maharashtra) not owned by the holding company in accordance with SEBI guidelines. No financial details of the offer were provided in their statements.
Neither firm clarified how the investment will be executed, but according to Finance Asia, market analysts expect that there will be some combination of sell down of existing shares by Tata Sons, the group holding company and an allotment of new shares.
Tata Sons had to underwrite the vast majority of a very poorly received Tata Motors rights issue at the beginning of November, when investment bankers JM Financial bizarrely failed to live up to their underwriting obligations after not being able to distribute the issue to investors.
This left holding company Tata Sons with no option but to prop up the issue itself and ultimately fund the Jaguar Landrover acquisition in the short run whilst it sought alternative financing options. The Tata Teleservices stake sale to DoCoMo is a means for the holding company to realise some value in its telecom assets and compensate for the financing debacle of its car manufacturing unit.
Group Chairman Ratan Tata asked CEOs and Managing Directors of 98 group companies to tighten their belts mid week indicating that Mr. Tata has grave concerns over financing. The chairman of the Rs. 305, 660 crore ($ 62 billion) conglomerate directed all pending loan and funding agreements be finalised expeditiously, even if it meant accepting higher interest rates Reuters news agency said in its report, citing The Hindustan Times as its source.
Managers of the company, the paper said, were told to put acquisition plans on hold unless strategically critical. The Indian daily had sourced an internal email which said “Some of our companies with substantial foreign operations or those which have made substantial acquisitions are facing major problems in raising capital and establishing lines of credit for their operations.” A Tata Sons spokesperson confirmed the contents of the email and told the Business Standard “The senior managements of the Tata Group companies have been advised to be sensitive and conscious of the difficult financial circumstances existing today and have been requested to be proactive to focus on cash flows and conserve expenditure wherever prudently possible.”
Tata Teleservices has created a pan-India presence covering 6,700 towns in 20 telecom circles spread across key Indian states and regions, including New Delhi and Mumbai. Tata Teleservices’ products include mobile services, wireless desktop phones and public phone booths among other things. The combined subscriber base of Tata Teleservices and Tata Teleservices (Maharashtra) is around 29.3 million. The Mumbai-based company also sells Richard Branson’s Virgin Mobile services in India.
DoCoMo was advised by J.P. Morgan, placing the US investment bank on the other side of the negotiating table from the Tata group. Earlier this year J.P. Morgan advised Tata group company Tata Motors on the $2.3 billion acquisition of the Jaguar and Land Rover brands and businesses. This time, the Tata group was advised by Lazard.
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