RBI relents on ’fair-value’ pricing norm; OKs Tata’s $1.1B deal to buy DoCoMo in telco

The Reserve Bank of India has decided to relax its existing fair-value pricing norm for international transactions, albeit for special cases, that will allow Tata Group to buy back 26.5 per cent equity stake in Tata Teleservices from Japanese partner NTT DoCoMo, several media reports said citing sources.

The reports said RBI has written a recommendation letter to the finance ministry to allow the buyback and other such transactions in the future too.

It is now up to FinMin to approve the move which would also set a precedent in such future transactions.

Currently such transactions are limited by the fair-pricing level, that is such deals cannot be struck at a price above the fair-price.

In this particular case, the fair-value of Tata Teleservices has been determined at Rs 23.34 a share by PricewaterhouseCoopers (PwC), the advisory firm engaged by Tatas. However, as per the agreement between Tatas and NTT DoCoMo, the Japanese firm can exit by selling its stake to a third party or to Tatas themselves for at least half of its investment value.

This required Tatas to find another investor or to itself buy NTT DoCoMo'S stake for Rs 7,250 crore (over $1.1 billion) or more.

NTT DoCoMo had exercised the option last July to sell the stake to either a third party or to Tata Sons. However, Tata group failed to find a buyer for the aforesaid stake, following which NTT DoCoMo Inc filed for arbitration against Tata Sons Ltd, the holding company of Tata group. The arbitration request has been filed at London Court of International Arbitration.

The Japanese firm entered the Indian market in March 2009 by acquiring 26.5 per cent in CDMA technology-based privately held telecom firm Tata Teleservices. The investment was rolled in two tranches starting with around Rs 13,280 crore ($2.57 billion then) in March 2009 and Rs 800 crore ($178 million) in May 2011.

It had separately also picked stake in the listed firm Tata Teleservices (Maharashtra) for Rs 570 crore. NTT DoCoMo owns 11.76 per cent in listed firm Tata Teleservices (Maharashtra), an associate firm of Tata Teleservices. Given the proposed transaction, NTT DoCoMo was also to sell this stake. Tata Teleservices (Maharashtra) provides telecom services in the telecom circles of Maharashtra (including Mumbai) and Goa.

Tata Teleservices was launching its GSM technology based services in 2009 and post the deal, the firm co-branded its GSM service as Tata DoCoMo.

At the time of signing the agreement, Tata and NTT DoCoMo agreed that if the Indian mobile phone joint venture failed to achieve performance target for the financial year 2013-14 (which ended on March 31, 2014), it could sell its shares.

In April last year, the Japanese mobile solutions provider had decided to exercise the option to unload its 26.5 per cent equity stake in loss-making Tata Teleservices Ltd by June 2014, which would have led to its virtual exit from India's fiercely competitive and crowded telecom market.

Tata Group’s holding in Tata Teleservices is spread across various group firms such as Tata Industries, Tata Steel, Tata Communications, Tata Chemicals, Tata Power besides the group holding firm Tata Sons. Other shareholders of the company include Singapore’s state-owned investment firm Temasek and private equity firm 2i Capital besides industrialist C Sivasankaran.

(Edited by Joby Puthuparampil Johnson)

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