Tata Sons to invest another Rs 3,000 cr into Tata Teleservices

After investing Rs 4,500 crore in the last two years, Tata Sons, the holding company of the Tata Group of companies, will have to pump in another Rs 3,000 crore into its unlisted subsidiary, Tata Teleservices through the Compulsory Convertible Preference Shares (CCPS) route. The board of Tata Teleservices approved CCPS issue on rights basis to its shareholders on June 24th.

Tata Teleservices, in turn, is expected to invest the funds in Tata Teleservices (Maharashtra) Ltd’s redeemable preference shares worth a similar amount. The infusion of Rs 3,000 crore more into Tata Teleservices comes against the backdrop of the London Court of Arbitration asking the Tatas on June 23 to pay $1.17 billion (Rs 7,859 crore) to its partner Docomo to buy back its 26.5% stake. In the past, shareholders other than the Tatas did not invest in Tata Teleservices’ CCPS issues. The Tatas own 60% stake in the company while Docomo owns 26.5%, while the rest is owned by minority shareholders.

When contacted, a Tata Sons spokesperson declined to comment.

As per statistics submitted to the stock exchanges, Tata Teleservices’ financial metrics are not recovering. The company made a loss of Rs 3,386 crore on revenues of Rs 10,662 crore for the fiscal 2016 as compared to a loss of Rs 3,846 crore on revenues of Rs 10,942 crore reported in fiscal 2015.

With continuous losses, the Tatas were looking to merge their operations with other telecom operators in India but haven’t received any firm offer as yet. The company was in talks with Norwegian multinational Telenor in the past, but no announcement has been made as yet.

The previous fund infusion by the Tatas was used by Tata Teleservices to repay its loans to banks and financial institutions. In March last year, the company participated in spectrum auction and won spectrum on Andhra Pradesh, Delhi and Haryana for Rs 4,034 crore. Of this, the company has already paid Rs 1,059 crore and has exercised the option to pay the balance Rs 2,975 crore under the deferred payment scheme offered by DoT.

For the Tata Group, Tata Teleservices is turning out to be a big drain on its income which is boosted mainly by dividend from India’s largest software exporter, TCS. Thanks to TCS, Tata Sons earned a bumper income of Rs 13,206 crore for FY15 as compared to previous year’s Rs 5,429 crore.

A study by this newspaper in April this year revealed that in the last 10 years, Tata Sons’ equity investment in key listed group companies (excluding TCS) grew at a compounded annual rate (CAGR) of 22% — from Rs 3,183 crore in FY04-05 to Rs 23,237 crore at the end of March 2015. But in comparison, its dividend income from this investment grew at a CAGR of only 5.7% — from Rs 339 crore in FY05 to Rs 591 crore in the past financial year.

This gives Tata Sons an investment yield of 2.5% (at cost) on its equity investment in the group’s listed companies. The ratios have declined steadily over the years, thanks to the poor profitability of major group companies. But, including TCS, investment yield shot up to 51%.