Tatas defer Tata Tele share conversion by a year

The Tata Group has deferred its share conversion option in Tata Teleservices Ltd by a year after the talks between the group and its equity partner NTT Docomo on the buyback of latter’s 26.5% stake failed to make headway. The share conversion is important for the Tata Group to implement its restructuring plan for the loss-making telecom company which includes a possible merger with another player.

The CCPS (Compulsorily Convertible Non-Cumulative Preference Shares) Series I will now be converted into shares by early next year by when the company expects more clarity on the buyback plan, as per a banker. The CCPS were issued by Tata Teleservices in two tranches since January 2014 and it raised Rs 4,500 crore to repay its loans to Indian banks and invest in buying spectrum.

Since January 2015, the Tata Group is locked in arbitration negotiations with NTT Docomo in London Court of International Arbitration over valuation of Tata Teleservices shares and till both companies come to an agreement, Tata Group’s holding company, Tata Sons cannot increase its stake in the company or merge it with Telenor, said a banker.

An e-mail sent to Tata Teleservices on Monday did not elicit any response.

The bone of contention between NTT Docomo and Tatas is the valuation of Tata Tele shares. Docomo is insisting on Rs 58 a share valuation for Tata Teleservices as per its 2009 agreement whereas Tata Sons is offering only Rs 23.34 a share, as per a valuation done by Price Waterhouse. The total valuation of Tata Tele, as per PW, works out to Rs 11,000 crore as compared to pre-agreed valuation of Rs 27,000 crore for the entire company.

As per a plan prepared by Tata Teleservices, the company is expected to break even in the June quarter as its operating performance improved in fiscal 2016 backed by reduction in termination charges, scaling down of operations in loss-making circles, network optimisation after redeployment of cell sites from loss-making circles, and stringent cost control measures. Tata Tele’s operating margins, which was 12% during fiscal 2015, improved to 19% during the first half of fiscal 2016, as per an analysis by rating firm Crisil.

Another positive for the company in the recent times was the sale of its 20% stake in telecom tower firm Viom Networks for Rs 2,800 crore to American Towers announced in October last year. The proceeds of the sale is expected this quarter and the company is planning to use the proceeds to fund its capital expenditure and repay its debt, which touched Rs 32,500 crore as on March 2015.

The Japanese company had earlier threatened to foreclose Tata Sons’ assets if the Tatas fail to honour a commitment to buy back its shares. Docomo had said the foreclosure action with respect to the assets of Tata Sons could be taken by a court in India, after a ruling by the London Court of International Arbitration. The matter is currently pending.