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Tata Communications sews new deal to sell Neotel

28 June, 2016

Tata Communications Ltd has inked a new agreement to sell its South African telecom arm Neotel Pty Ltd to another African group after a proposed deal with a subsidiary of Britain’s Vodafone Group Plc came unstuck.

The Indian company said in a statement Neotel will be acquired by Liquid Telecom, a subsidiary of the privately held Econet Wireless Global, in a deal worth ZAR6.55 billion ($428 million or Rs 2,900 crore). Tata Communications, which owns around 67% of the firm, will get around $285 million (Rs 1,938 crore).

This is the second stake sale deal struck by Tata Communications in as many months. In May, it agreed to sell a majority stake in its data centre business to Singapore Technologies Telemedia for about $635 million including debt.

Neotel, which started operations in 2007, is about one-third owned by minority shareholders led by Nexus Connection. The company is the second-largest provider of fixed telecommunications services for both businesses (commonly referred to as enterprise services) and consumers in South Africa. It operates data centres in Johannesburg and Cape Town, and connects the major cities in South Africa to the world via five undersea cables.

The transaction, which is subject to customary approvals, will create the largest pan-African broadband network and B2B telecoms provider, the statement said.

Liquid Telecom is tying up with Royal Bafokeng Holdings (RBH), a South African empowerment investment group, for the deal. RBH has committed to take a 30% stake in Neotel. Liquid Telecom CEO Nic Rudnick said Neotel and Liquid Telecom will use RBH’s strengths to offer services and international connectivity for telecom operators and enterprises across sub-Saharan Africa.

Vinod Kumar, managing director and CEO, Tata Communications, said, “Convergence of technologies and services will be the key driver of growth across the globe and this transaction will encourage inclusion and support the growth aspirations of the African continent.”

Hoping to be lucky

Tata Communications would be hoping to see through this deal after a previous transaction failed. It had earlier planned to sell Neotel to Vodafone unit Vodacom. The two companies had enteredinto exclusive talks for due diligence way back in 2013. The structure of the deal, worth $675 million when originally announced, and its commercial terms were subject to regulatory and competition authority approvals.

At the time of the acquisition announcement in May 2014, Vodacom had clarified that it would not assume Neotel’s debt of about ZAR4.815 billion as of end-March 2014.

Last November, Tata Communications said the proposed deal to sell Neotel for an enterprise value of ZAR7 billion (just under $500 million) was being renegotiated.

A month later, it said the revised terms had been finalised. Under the revised deal structure, Neotel’s wireless spectrum and licences were excluded from the deal. Instead, Neotel was to offer mobile roaming services to all local mobile network operators, including Vodacom.

Vodacom and Neotel had submitted documents to the Competition Tribunal in South Africa seeking approval for the revised transaction. But Tata Communications later said it could no longer proceed with the deal due to complexities in regulatory approval and non-fulfilment of certain conditions.

Shares of Tata Communications quoted 6.32% higher at Rs 478 apiece in the pre-open session on the BSE in a flat Mumbai market on Tuesday.

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Tata Communications sews new deal to sell Neotel

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