With a significant portion of its investment in Tata Teleservices (TTSL) getting eroded, Japanese telco NTT DoCoMo is clearing decks to exit the Indian telecom space completely.
In its annual report for FY14, uploaded on its website on June 27, DoCoMo stated that over fy13 and Fy14 it has recognised an impairment charge of around 5.8 billion yen, or Rs 3,433 crore, related to its investment in TTSL after determining “that the decline in value below the carrying amount was other-than-temporary.”
In another indication of the Japanese telco’s intention to exit its investment, Tata Teleservices (Maharashtra) — a TTSL subsidiary — informed the bourses on June 25 that, Koji Ono, a Docomo executive, had resigned as a non-executive, non-independent director of the company with effect from June 30.
According to a person familiar with the development, board members of TTSL and Docomo were likely to meet over the next fortnight to finalise the decision and work out the modalities of Docomo’s exit. He declined to be identified.
There was speculation earlier that TTSL would forge some sort of merger and acquisition alliance with either Vodafone or Norway’s Telenor, both of which have operations in India. However, since both the players have as of now kept the Tatas on hold due to either some regulatory uncertainty or for some more clarity on the M&A policy front, the Tata Gorup has decided to go ahead and acquire the stake itself.
There’s another legal hitch on which both the parties are seeking legal advice. Since the severance amount which Tatas need to pay DoCoMo is bound by the call and put option the two sides entered into when the latter bought the stake in 2008, it needs to be assessed whether it is as per the government’s revised norms. The two would have to seek regulatory approval on it.
As per the April 25 statement by DoCoMo, as part of the original agreement Tatas would pay a minimum of R7,250 crore to DoCoMo, which would be half of what the latter had paid to acquire the stake in 2008. Since the government has now put in place call and put option norms, which do not allow sale to happen at a pre-determined price, the company would need regulatory approval from the RBI.
However, some analysts FE spoke to said that since the amount payable is less than the original investment, approval may not be a problem.
In response to an email, a Tata Sons spokesperson said that the group did not comment on such matters.
“On your query regarding Tata Sons and Tata Teleservices, we would like to reiterate the position communicated on April 25: As also stated by NTT Docomo, it is not possible to predict how events will unfold; however, Tata Sons is cognisant of its responsibilities, and will act keeping in mind the interests of all stakeholders and in accordance with law,” she said, adding that TTSL was an integral part of the Tata group.