India to block Tata Sons payment to Docomo

NTT Docomo is seeking compensation for its stake in Tata Teleservices Ltd

India plans to block Tata Sons Ltd’s payment of a $1.17 billion (Dh4.29 billion) arbitration award to NTT Docomo Inc, which is seeking compensation for its stake in the Indian conglomerate’s wireless business, people familiar with the matter said.

The finance ministry won’t grant an exemption to the Indian foreign exchange act that Tata Sons would need to pay the money to its Japanese partner, according to the people. The Indian government is wary of setting a precedent, as at least 10 other companies have sought waivers for similar deals, one of the people said, asking not to be identified as the information is private. NTT Docomo is seeking compensation for its stake in Tata Teleservices Ltd as it tries to exit one of its worst overseas investments. The London Court of International Arbitration ordered last month that Tata Sons, the holding company for India’s largest conglomerate, pay $1.17 billion to the Japanese wireless carrier for breaching an agreement over the wireless venture.

Docomo shares declined as much as 2.8 per cent to 2,700.5 yen yesterday before trading at 2,750 yen as of 1:09pm in Tokyo. The stock has gained about 10 per cent this year.

The Japanese company’s agreement with Tata Sons gives it the right to request a buyer for its stake at a fair market price or 50 per cent of its acquisition cost, whichever is higher. That formula yields a greater price than what’s allowed by current Indian regulations, which state foreign companies can only exit investments at a valuation based on the return on equity.

Exemption

Tata Sons has sounded out the finance ministry on its willingness to grant an exemption, though it hasn’t yet made a formal application, one of the people said. Tata Sons may face penalties from the Indian government if it makes the payment without such approval, the people said.

NTT Docomo got an ex parte order from the Commercial Court in London seeking permission to enforce the award in the UK, Tata Sons said Thursday in an emailed response to Bloomberg queries. The court has granted the Indian company 23 days starting July 27 to apply for the order to be set aside, the company said.

“Clearly, fulfilment of the arbitral award requires conformance to Indian regulations and law, and Tata Sons is committed to full compliance with all such requirements,” Tata Sons said in the statement.