RBI okays special price for closure of Tata-DoCoMo JV

The Reserve Bank of India on Tuesday agreed in principle to a proposal by the Tata Group to buy back former Japanese partner NTT DoCoMo's 26.5 per cent stake in Tata Teleservices at a pre-determined price of Rs58 a share (or Rs7,250 crore for the entire stake), despite DoCoMo's valuer, Price Waterhouse, estimating the stake at Rs23.34 a share, 60 per cent lower.

The RBI has referred the matter to the investment division of the department of economic affairs under the finance ministry for views and comments.

On 22 December 2014, RBI told the finance ministry Tata had hired Price Waterhouse to determine the fair value of the shares of Tata Teleservices, soon after DoCoMo expressed interest to exit the company in April 2014.

The central bank said Tata agreed to buy back the shares at Rs58 each and had sought RBI permission for the transaction, as the price to be paid was higher than the fair-price valuation.

It added that Price Waterhouse valued DoCoMo's stake at Rs2,915 crore, against the Rs7,250 crore sought by the Japanese company, according to its 2009 agreement with the Tatas. The total valuation of Tata Teleservices, according to the valuer, was only Rs11,000 crore, against the pre-agreed valuation of Rs27,000 crore.

The RBI letter says according to the agreement between the two companies, the exit price was Rs58 a share. But it added according to a circular dated 1 July last year, the issue and transfer of shares were to be at a price worked out in line with an internationally agreed methodology, on an arm's-length basis.

"Thus, the guiding principle will be that the non-resident investor is not guaranteed any assured price at the time of making the investment/agreement and will exit at a fair price, subject to lock-in period requirements," RBI said.

"Taking into consideration the above provisions, we observe the proposed structure is not in line with the extant provisions, as the fair value of shares is Rs 23.34 a share. However, the larger issue here is of fair commitment in the contracts in relation to an investment and a downside protection of an investment rather than an assured return. Besides, our relationship with Japan in relation to FDI (foreign direct investment) flows is also a matter to be kept in view. Therefore, we are inclined to accept the (Tata) proposal," RBI said, asking the finance ministry to state its view.

In 2009, DoCoMo had paid $2.22 billion for 26.5 per cent stake in Tata Teleservices.

According to the agreement, the Tata group, which owned 65 per cent stake in Tata Teleservices, was to buy back the stake at least at half the valuation or at the fair market price, whichever was higher than DoCoMo's purchase price.

On 5 January, the Japanese company had announced it had moved the London Court of International Arbitration against the Tatas for failure to honour the 2009 buy-back agreement (See: DoCoMo launches London arbitration over Tata JV stake sale).

DoCoMo had also threatened to foreclose Tata Sons' assets if the Tatas failed to honour the commitment. DoCoMo had said the foreclosure action on the assets of Tata Sons could be taken by a court in India, after a ruling by the London Court of International Arbitration.

In April 2014, DoCoMo had decided to exit Tata Teleservices after the company reported a record loss of Rs6,166 crore on revenue of Rs10,452 crore for 2013-14. For the previous financial year, the company had reported a loss of Rs4,858 crore on revenue of Rs10,770 crore, even as its net worth was eroded by Rs 1,800 crore in FY13.

On 7 July, DoCoMo exercised its right (option) to request a suitable buyer be found to purchase its stake; it gave Tata Sons 90 business days to find a buyer for Rs7,250 crore ($1.15 billion) or the fair market price. As the Tatas couldn't find a buyer by December 3 and did not buy the shares itself, DoCoMo filed for arbitration.