RBI halts Tata’s plan to buy DoCoMo’s stake in Tata Tele

DoCoMo in July last year had announced plans to exit Tata Teleservices.

The Reserve Bank of India (RBI) has turned down Tata Sons’ request to honour a put option given to DoCoMo in 2009 to agree to buy back the latter’s 26.5 per cent investment in Tata Teleservices for about Rs 7,250 crore.

However, DoCoMo had invested Rs 14,500 crore. When the deal was signed, there was some ambiguity as to whether this was allowed — in 2001, even the NDA government had signed a similar option with Sterlite for the latter’s purchase of Balco and Hindustan Zinc.

When the RBI finally announced a policy on options last year, it laid down strict rules on fair-market valuations, as a result of which the buyback price would be just Rs 23.34 per share against the Rs 58.05 agreed to earlier. At that time of the deal, Tata Teleservices’ net worth was Rs 1,863 crore while it is Rs 8,985 crore today.

Since the Japanese are big investors, the RBI asked the finance ministry if a one-time exception could be given. Following protests from top industrialists against a relaxation for one firm, there was a discussion between the PMO and the finance ministry, and the RBI was advised to stick to the current guidelines. A Tata spokesperson confirmed the RBI decision and said steps towards initiating an arbitration have been taken.

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DoCoMo in July last year had announced plans to exit Tata Teleservices, the 7th biggest mobile operator in India. The exit, it had said, was to happen as per the 2009 agreement with Tatas when the Japanese firm invested $2.2 billion in Tata Teleservices. As per the agreement, it was to get the higher of either half the original investment or a fair value.

Tata Sons had engaged PwC to determine the fair value in relation to the equity shares of Tata Teleservices. As per their report, the fair value was Rs 23.34 per share. Unable to find a buyer, Tata Sons in November applied to RBI to purchase the stake at
Rs 58.05 per share.