Reaches settlement with Japan’s NTT Docomo
Docomo will collect arbitration award of $1.17 bn; Ratan Tata led settlement talks
Tata Sons Ltd and NTT Docomo Inc told the Delhi high court on Tuesday that they had reached a settlement on the enforcement of an arbitration award to the Japanese telco, ending a dispute simmering for over two years.
Tata Sons chairman emeritus Ratan Tata led the settlement discussions.
While Tata Sons has withdrawn its objections to the arbitration award, which will see Docomo collect $1.17 billion, the latter will not seek to enforce the award in any jurisdiction for six months.
The Delhi High Court will have to adjudicate on the Reserve Bank of India’s (RBI’S) objection to Tata’s application to buy back Docomo’s stake in Tata Teleservices Ltd at ₹58.5 a share (or 50% of its acquisition price) — a sticking point in the dispute.
Both Tata Sons and NTT have objected to RBI’S statement in the court terming the exit agreement illegal. The central bank, according to 2014 norms which specified that foreign companies can only exit investments at a valuation based on the return on equity, rejected NTT’S exit proposal.
The details of the settlement are unclear, but analysts say it is positive that the dispute is being resolved so early in N Chandrasekaran’s tenure as Tata Sons chairman. Chandrasekaran assumed office on February 21.
The Docomo dispute was repeatedly brought up as one of the issues which was needed to be addressed (by the group in the wake of the exit of its former chairman Cyrus Mistry), noted Amit Tandon, managing director at Institutional Investors Advisory Services, a proxy adviser. “A lot of groundwork must have been underway for this. It’s also a reflection of the depth of management.” Tandon’s reference is to the fact that the deal was hammered out even as Tata Sons and its former chairman are engaged in a legal battle.
Mistry’s handling of this dispute was reportedly one of the reasons for Tata’s growing displeasure with him — which eventually resulted in his ouster as chairman of Tata Sons on October 24. In a November 10 statement, among other things, Tata Sons had expressed concerns regarding the manner in which Mistry handled critical issues such as Tata Steel Europe problems in the UK and the Docomo negotiations.
Mistry defended the action. “Insinuations that the Docomo issue was handled under the watch of Mr Mistry in a manner inconsistent with Tata culture and values are baseless,” Mistry’s office said.
“This joint application is a successful result from recent discus- sions between Docomo and Tata Sons under the leadership of Ratan Tata… which are ongoing. Today’s agreement is a significant step towards resolution of this dispute,” said a NTT statement. The statement added that receiving the full payment will enable Docomo to consider reinvestment of a part of it in India under a new cooperative relationship with Tata Sons.
“It will restore some of the credibility in the Tata brand,” said JN Gupta, managing director and co-founder, Stakeholder Empowerment Services (SES). “There was an allegation that Tatas are not honouring the contract.”
The spat between Tata and Docomo started when the latter approached a London Arbitration court in January 2015 claiming that Tata Sons failed to fulfil its obligation to find a buyer for Docomo’s stake in Tata Teleservices in January 2015.
In April 2014, NTT Docomo decided to sell its entire 26.5% stake in Tata Teleservices and withdraw from mobile telephony in India. Its 2009 agreement with Tata gave it the right to request a buyer for its stake at a fair market price or 50% of its acquired price, amounting to ₹7,250 crore, whichever was higher. That fell foul of RBI norms announced in 2014.
Subsequently, the London court ordered Tata Sons to pay $1.17 billion as compensation to Docomo in June for breaching an agreement. When the Tatas cited their inability to do so without breaching the laws of the land, Docomo filed enforcement proceeding before the Delhi High Court.
The court will next hear the Tata NTT Docomo case on March 8.