Tata group has received approval from the Reserve Bank of India (RBI) to buy back Docomo’s 26.5 percent stake in Tata Teleservices (TTSL) at a pre-determined price of Rs 58 a share though Price Waterhouse has valued the stake at Rs 23.34 a share, 60 percent lower.
The value of Docomo stake will be Rs 7,250 crore though Price Waterhouse valued Docomo’s stake at Rs 2,915 crore. Getting Rs 7,250 crore from Tatas was one of the pre-decided conditions of the Japanese telecom giant to exit from TTSL. Docomo expressed interest to exit from the loss making company in April 2014, said a Business Standard report. Docomo bought the stake in 2009. According to media reports, Telenor is looking at buying stake in TTSL.
Tatas hired Price Waterhouse to determine the fair value of the shares of Tata Teleservices in April 2014. Tatas agreed to buy back the shares at Rs 58 a share and sought the central bank’s permission for the transaction, as the price to be paid was higher than the fair-price valuation.
Price Waterhouse valued Tata Teleservices at Rs 11,000 crore against the pre-agreed valuation of Rs 27,000 crore.
A Business Standard report says RBI has referred the matter to the investment division of the Department of Economic Affairs under the finance ministry for views and comments.
The RBI letter says the exit price agreed between Tatas and Docomo was Rs 58 a share. According to a circular dated July 15 last year, the issue and transfer of shares were to be at a price worked out in line with an internationally agreed methodology, on an arm’s-length basis.
RBI said the guiding principle will be that the non-resident investor is not guaranteed any assured price at the time of making the investment/agreement and will exit at a fair price, subject to lock-in period requirements.
The apex bank observed the proposed structure is not in line with the extant provisions, as the fair value of shares is Rs 23.34 a share. RBI opines that the larger issue here is of fair commitment in the contracts in relation to an investment and a downside protection of an investment rather than an assured return.
“Besides, our relationship with Japan in relation to foreign direct investment flows is also a matter to be kept in view. We are inclined to accept the (Tata) proposal,” RBI said, asking the finance ministry to state its view.
Tata Teleservices reported a loss of Rs 6,166 crore on revenue of Rs 10,452 crore for 2013-14. TTSL posted a loss of Rs 4,858 crore on revenue of Rs 10,770 crore for 2012-13. Its net worth was eroded by Rs 1,800 crore in FY 2013.