The Reserve Bank has rejected Tata Sons' proposal to buy Japanese telecom firm NTT DoCoMo's stake in their struggling joint venture, Tata Teleservices 7th largest operator by market share, for about 1.1 billion dollars (Rs 7,250 crore).
"The RBI has conveyed that it cannot accede to this request as the same is not in conformity with the extant FEMA regulations and has advised that any such purchase of shares be at current fair value of shares," Tata Sons said in a statement.
Tata Sons had in November last year applied to RBI to purchase DoCoMo's 26.5 per cent stake at Rs 58.045 per share (totalling about Rs 7,250 crore) - half the price which the Japanese firm paid in 2009.
"Tata Sons had made an application to the Reserve Bank of India for a special permission to pay DoCoMo, as per the shareholders agreement, at a price that was higher than the current fair value of the TTSL shares," the statement said.
It added: "This issue will now have to be resolved in the arbitration between the parties. Steps towards initiating arbitration have been taken. We will not be able to comment further as the matter is sub-judice."
DoCoMo in July, last year announced plans to exit Tata Teleservices, the 7th biggest mobile operator in India.
The exit, it had said, was to happen as per the 2009 agreement with Tatas when the Japanese firm invested USD 2.2 billion in Tata Teleservices. As per the agreement, it was to get the higher of either half the original investment or a fair value.
Tata Sons had engaged PwC to determine the fair value in relation to the equity shares of Tata Teleservices Ltd. As per their report, the fair value was Rs 23.34 per share.
Unable to find a buyer, Tata Sons in November applied to RBI to purchase the stake at Rs 58.045 per share - half the price DoCoMo had paid in 2009. But it could not get the requisite approvals in time and DoCoMo earlier this month dragged Tatas to an international court of arbitration.
The Japanese firm had stated that as per the 2009 agreement that formed Tata Teleservices, DoCoMo can sell the shares if the joint venture fails to meet performance targets in the fiscal year that ended on March 31 last year.
DoCoMo, TTSL and Tata Sons had in March 2009 signed shareholder agreement for the business alliance. DoCoMo picked up 27.31 per cent stake in Tata Teleservices for Rs 12,924 crore and 20.25 per cent in Tata Teleservices (Maharashtra) Ltd - the listed arm of TTSL - for Rs 949 crore. Overall, DoCoMo holds 26.5 per cent in Tata Teleservices.
With Tata was not being allowed to bid for spectrum in circles where it currently doesn't hold any, on account of its negative net worth and now being dragged into international arbitration by Docomo, it seems they are sailing through troubled waters and the future of the JV remains in question.