NTT DOCOMO to acquire 26% in Tata Tele

NTT DOCOMO will acquire 20% stake via fresh equity and 6% from existing shareholders, reports CNBC-TV18. The open offer price will be decided as per Sebi’s prescribed minimum price on the relevant date. Tata Tele will use funds infused for strategic expansion and marketing efforts.

Earlier it was reported that NTT DOCOMO will pay USD 2.7 billion for the Tata Teleservices stake. Tata Teleservices is the parent company of listed entity Tata Teleservices Maharashtra. NTT DOCOMO will join Tata Sons in making an open offer for 20% stake in Tata Tata Teleservices Maharashtra, or TTML.

The deal involves existing assets as there are no new licence acquisitions. The nature of relationship is similar to the Vodafone-Hutch deal. TTSL will use NTT's research and development capability in WCDMA and i-mode.

TTSL got the licence in 1997 and has a subscriber base of 30 million.

TTSL got the licence in 1997 and has a subscriber base of 30 million.
Valuation and numbers doing the round are anywhere between USD 1.5-2.7 billion dollars for this 26% stake in TTSL; it owns 38% stake in TTML(Tata Teleservices Maharastra).

Here is a verbatim transcript of Sunita Nagpal’s comments on CNBC-TV18. Also watch the accompanying video.

As for the listed stock, the only positive from the stake sale would be that the capex the company has announced both for TTSL and TTML is about USD 2 billion dollars. So with this kind of money coming in, they will be able to fund this capex plan, which is the only positive for TTML in specific. There is unlikely to be an open offer because the Japanese company is holding 26% stake in TTSL which holds about 38% in TTML. So, indirectly the stake in TTML will be 9-10%. Also there is no change in the management, in owenership very specifically, so for TTML that’s the only case.

However, what is surprising is the valuations. Reports claim USD 2.7 billion for 26% stake, out of which 20% is for fresh equity and 6% will be sold by existing shareholders like Tata Power and other Tata companies. So the money that is coming in TTSL is about USD 2 billion dollars and that is roughly about the capex that they have announced for next 24 months. But this does not include their participation in 3G auction, so it will be separate.

If you look at the valuations that gives the total company, is about USD 10.4 billion dollars and if you deduct the money they are getting, it’s about USD 8.3 billion dollars for TTSL. This is quite surprising because this is the kind of valuation that is almost double of what Idea Cellular valuation is; Idea has 30 million and is a GSM player. So these valuations, at the face of it look very expensive. However, one needs to watch out for the contours of the deal and how it is structured.