Delay in Tata Tele biz sale to hit valuation

NCLT, DoT approvals still to come

Almost eight months after N Chandrasekaran, chairman, Tata Sons, sealed a deal with Sunil Mittal’s Airtel for Tata Teleservices’ consumer mobile business, and also took a strategic call to exit from its enterprise business, the pain is far from over.

The fate of both — a formal closure of the deal with Bharti and sale of the enterprise business — is tied to approval from the Union government’s department of telecommunications (DoT). The delay, particularly in sale of the enterprise business, has been eroding its valuation. With Reliance Jio announcing its entry into the enterprise solutions segment in January, there would be more damage from the delay, say sources.

A Tata Sons spokesperson declined to comment. The holding company of Tata group has been keen on selling Tata Tele’s enterprise business to Tata Communications but this requires a go-ahead from DoT, which owns 26 per cent in Tata Comm. According to sources, Tata Sons is likely to infuse ~30 billion in loss-making Tata Comm as equity and that amount will be used as payout for the enterprise business of Tata Tele.

However, the issue is not around buying of the enterprise business but the various dues of Tata Tele to DoT, in the form of licence fee and spectrum charge, totalling ~100-150 billion.

In January, Tata Sons had also got a $1.2-bn bid from Tata group executives, led by its head of international operations Mukund Rajan, for Tata Tele’s enterprise business. They were being backed by a consortium led by TPG Capital and a large sovereign pension fund in their bid for assets of the telecom company. “Both (Rajan’s offer and selling the business to Tata Comm) are still under consideration,” said another source. “It (Tata Tele’s enterprise business) is not some “family silver” that the group may want to hold on to,” said another source, adding that the business needs major overhaul and new investment. More, with two of its biggest customers Reliance Communications

and Aircel, having gone bankrupt, the valuations will be hit. “The sooner it is done, the better,” he said.

Closure of the deal with Bharti Airtel, presently in the process of getting approvals, is also not without challenge. As part of the deal, Airtel will acquire the mobility business of Tata Tele on a cash-free and debt-free basis; Tata Sons will own all the liabilities and dues.

However, as many of the dues, including spectrum charges and licence fee, are matters pending in courts of law, Tata Sons might not want to pay to DoT before a final verdict.

But, as Airtel will not take ownership of any liability, Tata Tele will have to either clear the dues or give some guarantees to DoT. Clearance of dues might also be a pre-condition for Tata Comm acquiring the enterprise business of Tata Tele.

At the time of the deal announcement with Airtel, the Tata group had said it would take additional debt within Tata Sons and take care of all liabilities, to be refinanced in some form.

The Tata Tele-Airtel deal has been approved by the Competition Commission of India. Markets regulator Sebi and the National Company Law Tribunal (NCLT) are still reviewing. For Tata Teleservices Maharashtra Ltd, the application was filed on April 10 at the NCLT and for Tata Teleservices, the date was May 17. After NCLT approval, DoT has to approve.

Tata Tele has to meet operational expenses, albeit smaller ones. Airtel is operating the former’s network and the customers have also been shifted as part of an intra-circle roaming agreement between the companies.

However, Tata Tele still has to pay salaries to employees who cannot be shifted to Airtel before the deal is approved by DoT.