Japanese telecom giant NTT Docomo on Friday announced it is selling its entire 26.5% stake in Tata Teleservices for Rs 7,250 crore ($1.19 billion), or about is half the price it acquired it from TTSL for $2.61 billion in 2009.
This is a second exit by a Japanese company from an Indian firm in a fortnight after Daiichi Sankyo announced it is selling its stake in Ranbaxy to Sun Pharma.
As per a Docomo executive, the company has an option to exit by selling its stake at 50% of the acquisition price or a "fair market price" if TTSL did not achieve certain targets.
Docomo expects TTSL has missed those targets in the fiscal that ended in March and sees the completion of sale by June.
The loss-making TTSL is beset by considerable competition and dwindling subscriber base in India.
Tata Group holds 65% stake while Temasek has 6.45%. Indian businessman C Sivasankaran too holds a small stake in Tata Teleservices.
As per a statement from Tata Sons, "Following its Board meeting held on April 25, 2014, NTT Docomo has announced that it plans to exercise its sale option under the SHA as soon as the conditions for such exercise are met."
"As also stated by NTT Docomo, it is not possible to predict how events will unfold; however, Tata Sons is cognisant of its responsibilities, and will act keeping in mind the interests of all stakeholders and in accordance with law. TTSL continues to be an integral part of the Tata group."
While Tata group chairman Cyrus Mistry had last year implied the group may not be focused on 'non-profitable' verticals, dna in February reported that telecom major, Vodafone Group was likely to buy TTSL in the next six months. This could make Vodafone the largest telco in India.
Docomo had an option to raise its stake in TTSL to 35% in 2012 and again in 2014, but it did not do so. Analysts expect Docomo to report about 80 billion yen ($780 million) in related losses in the fiscal ended March 31. The company is also involved in a $4.9 billion share buyback for 7.7% stake of its Japanese operations.
Unlisted TTSL has seen its subscriber base dwindle a fifth to 63.15 million subscribers as of February in less than two years. In December 2014 quarter, TTSL (Maharashtra) had reported a net loss of Rs 156.36 crore, although its total income rose 6.6% to Rs. 711 crore for the reported period, and operating profit stood at Rs 148 crore for the quarter. TTSL has a total debt of Rs 23,491 crore.
Shobhit Khare VP – research, Motilal Oswal Securities, said, "NTT Docomo's exit signifies continued headwinds being faced by the challengers in the Indian telecom market. With huge investments required by operators towards renewal and data services spectrum, the consolidation process is expected to accelerate."
Mohammad Chowdhury, leader- telecom, PwC India, said, "Some consolidation is to be expected in Indian telecoms in the next few years. Given the growth in data, deals involving CDMA spectrum could offer advantages to operators offering mobile broadband, since the spectrum offers such good data speeds."
The other foreign telco, Russia-based Sistema, which too entered India in 2009 with a JV with Shyam Group has plans to stay on in India, despite having a meagre 8.8 million subscriber base, as of February 2014.
TTSL's operations have been under fire for quite a while. Its three licences were cancelled by Supreme Court, and last year it gave up CDMA spectrum in 18 circles.
TTSL has done a number of things to improve performance, including revamping, adding additional 1,500 cell sites and extending services to an additional 900 towns, offering competitive 3G tariffs in the nine circles where it holds 3G spectrum. It also reduced international call rates, became the number one dongle player in the country with Tata Photon, and focused on its mRupee – mobile wallet services.
Tata Docomo was also the first operator to launch per-second billing in the country, as well as the first telco to launch 3G services in 2010.