Tata Comm to Sell Stake in SA Unit Neo­tel to Voda Arm

Deal val­ues Neo­tel at .` 3,955 cr; move may be a pre­cur­sor to group’s exit from tele­com

The Economic Times - - Companies - OUR BUREAU

Tata Com­mu­ni­ca­tions (Tata Comm) sealed a deal to sell its stake in South African telecom­mu­ni­ca­tions unit Neo­tel to an arm of Voda­fone Group for an en­ter­prise value of $676 mil­lion (.`3,955 crore), send­ing the In­dian com­pany’s shares surg­ing by more than 7% in Mon­day trad­ing. The deal may be a pre­cur­sor to the Tata Group mak­ing a whole­sale exit from tele­com by sell­ing its var­i­ous units to Voda­fone, people fa­mil­iar with the mat­ter said. These in­clude loss-mak­ing tel­cos Tata Te­le­ser­vices and Tata Te­le­ser­vices Ma­ha­rash­tra, the sec­ond of which is listed, apart from un­der­sea ca­ble firm Tata Comm. The Tatas are widely be­lieved to be look­ing to sell their hold­ings in the debt-laden tele­com units and have re­port­edly been in talks with Voda­fone for a while now but these had stalled over val­u­a­tions. The South Africa deal may give a boost to ne­go­ti­a­tions for a big­ger deal. This is the first bid by the Tata Group to delever­age the bal­ance sheet of its tele­com businesses to pare debt since it sold 26% of Tata Te­le­ser­vices to NTT DoCoMo for $2.7 bil­lion in 2009 and 2011. NTT DoCoMo has since de­cided to exit In­dia af­ter the lat­ter didn’t meet cer­tain fi­nan­cial mile­stones amid stiff com­pe­ti­tion. (If the Tatas can’t find a buyer for NTT’s stake by June end, it has to pay a mar­ket-linked price, or at least .` 7,250 crore, half the in­vest­ment the Ja­panese ma­jor had made in the joint ven­ture. Tata Comm con­firmed the South Africa deal in a re­lease on Mon­day, say­ing that Vo­da­com SA has agreed to buy 100% of Neo­tel for an en­ter­prise value of ZAR 7.0 bil­lion. The other share­hold­ers in Neo­tel are Nexus Con­nec­tion and Com­mu­ni­tel. Jo­han­nes­burg-based Vo­da­com said the deal will be funded through cash and ex­ist­ing credit fa­cil­i­ties.

“It is in line with our fi­nan­cial ob­jec­tives while pav­ing the way for Neo­tel to im­prove its value propo­si­tion in the South African mar­ket,” Vinod Ku­mar, MD and CEO at Ta- ta Comm, said in the state­ment. Tata Comm owns 67% of Neo­tel, which has around 1,52,000 cus­tomers and 1,000 em­ploy­ees. The com­pany pro­vides whole­sale tele­com and in­ter­net ser­vices to com­pa­nies in Africa. The stock rose as much as 7.4% be­fore clos­ing 3.7% higher at .` 304.80 on the Bom­bay Stock Ex­change, out­pac­ing broader mar­ket gains. The trans­ac­tion is cru­cial to the Tata Group-owned un­der­sea ca­ble com­pany, which needs the money to re­duce ac­cu­mu­lated net debt of $1.4 bil­lion. It hasn’t been able to raise funds to meet cap­i­tal ex­pen­di­ture re­quire­ments be­cause the In­dian govern­ment, a stake­holder in the com­pany, has not al­lowed any share sale. The group ac­quired a con­trol­ling stake in Videsh San­char Nigam, as the com­pany was known at the time, from the govern­ment in 2002. “This deal en­ables Tata Comm to fo­cus on its in­ter­na­tional en­ter­prises busi­ness and also in­vest fur­ther into its do­mes­tic back­bone ca­pa­bil­ity,” said a se­nior source in­volved di­rectly with the deal. Prashant Sing­hal, tele­com in­dus­try leader at Ernst & Young, backed this view, say­ing Tata Comm can now fo­cus on its core busi­ness of un­der­sea ca­bles and high-end data ser­vices. Vo­da­com Group will get ac­cess to 15,000 km of Neo­tel’s fi­bre op­tic ca­ble, in­clud­ing 8,000 km in Jo­han­nes­burg and Cape Town, the per­son cited above told ET. In ad­di­tion, Vo­da­com will also get air­waves in the 1.8 GHz, 800 MHz and 3.5 GHz bands.

An­a­lysts added that af­ter sell­ing its Amer­i­can tele­com busi­ness to Ver­i­zon last year, Voda­fone has sur­plus cash of $130 bil­lion, which it is in­vest­ing in strate­gic businesses and ge­ogra­phies.

Stan­dard Char­tered was the ad­vi­sor to Tata Comm on the deal, ne­go­ti­a­tions for which were first re­ported last Septem­ber. The talks hit a hur­dle when it was re­vealed in April that the lo­cal tele­com author­ity was de­bat­ing whether to al­low the trans­fer of air­waves as part of the deal, crit­i­cal to the trans­ac­tion, people fa­mil­iar with de­vel­op­ment had said.

The In­de­pen­dent Com­mu­ni­ca­tions Author­ity of South Africa (Icasa) was con­sid­er­ing strip­ping Neo­tel’s spec­trum if the com­pany was sold to Vo­da­com. This would have made a deal near im­pos­si­ble as the band­width was one of the most cru­cial el­e­ments in the sale.

Is­sues re­lat­ing to the deal weren’t re­solved un­til Sun­day, Vo­da­com CEO Shameel Joosub said on a con­fer­ence call. The com­pany won’t have to take on Neo­tel’s debt as part of the deal, while the next step would be to gain clear­ance for change of own­er­ship from Icasa and the Com­pe­ti­tion Com­mis­sion, Joosub said.

“We are ap­ply­ing for a trans­fer of own­er­ship, not a trans­fer of spec­trum,” he said. The deal will prob­a­bly be com­pleted by the end of March 2015. The 7-bil­lion rand ($676 mil­lion) trans­ac­tion will be funded through cash and ex­ist­ing credit fa­cil­i­ties, Jo­han­nes­burg-based Vo­da­com said.

Ac­cord­ing to sources, the Tatas have been in talks with Voda­fone In­dia for the sale of Tata Te­le­ser­vices. A per­son fa­mil­iar with the mat­ter said the DoCoMo exit could have been part of a broader strat­egy to en­able Voda­fone to ne­go­ti­ate with just one seller, in­stead of two.

There was no re­sponse to emails sent to Voda­fone while Tata de­clined to com­ment.

Tata Comm first in­vested in Neo­tel in 2006, buy­ing 26% stake for around $250 mil­lion. With that, it owned the high­est share in the sec­ond fixed-line telco in South Africa. Sub­se­quently, it raised the stake to 67%.

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