Tata Group May Buy Back NTT Docomo’s Stake In JV

Tata Group has lined up funds to buy back NTT Docomo's 26.5% stake in their telecom joint venture, according to insiders familiar with the development.

In April this year, the Japanese firm decided to exit the JV with loss-making Tata Teleservices, which means the Indian company is now left with two options – it can either buy back the stake in the JV or can look for another buyer as per the 2009 JV agreement. According to that accord, if it can't find a buyer by the end of June 2014, the Tata Group will have to pay a market-linked price or at least Rs 7,250 crore, which is 50% of the investment that the Japanese firm had made into the joint venture.

Sources informed that the Tata Group had approached Vodafone India for a lock-stock-and-barrel sale of the unit. However, neither Tata Teleservices nor Vodafone confirmed the development.

The valuation, too, may become a sticking point in the negotiations as Tata Teleservices has run into a massive debt, making its net worth negative. "With this debt level and inadequate profit generation to service it, the company's equity value to a third party is very little," a banker told the Economic Times.

According to analysts’ estimates, Tata Teleservices' enterprise value could range between Rs 29,700 crore and Rs 32,200 crore. Having taken out the debt, its value is likely to be between Rs 1,700 crore and Rs 4,200 crore.

Insiders also say that the Tata Group is unlikely to sell the business at that price and it may keep the stake after buying it from Docomo unless it gets an adequate price.

The latest development involving the JV between Tata Teleservices and NTT Docomo reflects the sorry state of affairs faced by the less popular operators which are struggling to stay afloat in a market dominated by three leaders – Bharti Airtel, Vodafone India and Idea Cellular.