Tata will have to pay if DoCoMo finds no buyer by June

  • The Tata Group will have to shell out at least $1.2 bln (7,250 crore) to NTT DoCoMo before June end if they are not able to find a buyer for its stake in Tata DoCoMo, the telecom company.

    Tata Group has been trying to get a buyer, but has so far met with little success. Among the companies that the group spoke to are reported to be Vodafone, with which it is reported to have held lengthy discussions.

    However, with the government refusing to amend a law that requires any buyer of subsidized spectrum from having to pay the government full market price for the same, the deal is supposed to have fallen through. If Vodafone buys Tata Teleservices, it would have to pay billions of dollars in spectrum charges to the government.

    However, Tata Sons still has the option of getting a third party company to buy DoCoMo’s minority stake in Tata DoCoMo. Such a transaction would not require any extra spectrum payments and would protect Tata Sons from having to pay DoCoMo directly.

    However, no other telecom player in India is allowed to hold a stake of more than 10% in a second telecom player. As a result, the Tata Group will have to look outside Indian telecom space to find a partner. Tata is reported to be willing to sell even the entire company to any interested party.

    The full text of NTT DoCoMo’s statement is below-

    NTT DOCOMO announced that its board of directors resolved today to exercise option for the sale of the company’s entire stake (1,248,974,378 shares, or about 26.5% of outstanding shares) in Tata Teleservices Limited (TTSL), a DOCOMO-affiliated company accounted for by the equity method, as soon as the conditions for such exercise are met.

    DOCOMO, TTSL and Tata Sons Limited (Tata Sons), Tata Group’s holding company, concluded a shareholder agreement when DOCOMO entered into a business alliance with TTSL in March 2009. Under the agreement, DOCOMO holds the right to require that its TTSL shares be acquired for 50% of the acquisition price, which amounts to 72.5 billion Indian rupees (or 125.4 billion yennotice1) or a fair market price, whichever is higher, in the event that TTSL fails to achieve certain specified performance targets (the above-mentioned option).

    In the event that TTSL fails to achieve these performance targets by the end of the fiscal year ended March 31, 2014, DOCOMO plans to exercise the above-mentioned right in or before June 2014. DOCOMO expects to sell its TTSL shares in accordance with the agreement. It is uncertain how the option will be performed, however, and DOCOMO is not able to predict how events will unfold. The effect on DOCOMO’s corporate earnings for the fiscal year ending March 31, 2015 cannot be forecast at this time due to these uncertainties.