UK Court to Tata Sons: Pay $1.17 Billion in Damages to Docomo
Docomo gets higher valuation to exit Tata Teleservices
An arbitration court based in London has ordered Tata Sons to buy back its Japanese partner NTT Docomo’s 26.5 per cent stake in Tata Teleservices for $1.17 billion (Rs 7,949 crore).
In a statement, Docomo said: “The award orders that Tata Sons pay damages to Docomo in the amount of approximately $1,172 million for Tata Sons' breach of the shareholders agreement, upon Docomo's tender of its entire stake in Tata Teleservices to Tata Sons or its designee.”
When contacted, a Tata Sons spokesperson said it had received the arbitration award, and it was studying it. “We will not be able to comment further at this stage, beyond maintaining our consistent position that Tata Sons has always been and continues to be committed to discharge its contractual obligations in a manner consistent with the law,” the spokesperson said.
In January 2015, Docomo had approached the London Court of Arbitration after the Tatas could not buy back the stake citing a Reserve Bank of India order that barred pre-agreed valuation of shares. Instead, going by a valuation by an independent valuer, the Tatas offered to buy back Docomo’s share for Rs 23.34 a share (a valuation of Rs 11,000 crore for the entire company), as compared to a pre-agreed valuation of Rs 58 a share or a valuation of Rs 27,000 crore.
As Rs 58 a share, Docomo’s 26.5 per cent stake was worth Rs 7,200 crore while the valuation by the independent valuer was Rs 2,915 crore. But with the London court award in its favour,Docomo may go back to Tokyo far richer, provided the Tatas do not appeal against the award or litigate further in the Indian courts.
In 2009, Docomo had invested $2.2 billion (Rs 12,740 crore) in Tata Teleservices, at Rs 117 a share, with an understanding that it would get at least half of its acquisition price if it exits the Indian company in five years. As the financial metrics of Tata Teleservices declined since Docomo's acquisition, its net worth completely eroded three years ago.
In April 2014, Docomo finally announced its plans to exit the venture and asked Tatas to buy back the shares in line with the 2009 agreement. Apart from Tata Sons, other Tata group companies such as Tata Steel and Tata Power hold close to 60 per cent stake in Tata Teleservices. Meanwhile, the Tatas invested another Rs 3,500 crore in Tata Teleservices in the past two years so that Tata Teleservices can meet its obligations to the banks. After the Tatas failed to find a buyer for its stake, Docomo then asked Tatas to buy back the shares. But when Tatas sought the Reserve Bank of India’s permission to buy back Docomo’s shares at the pre-determined valuation, the latter rejected it after consulting with the finance ministry.
Citing Indian laws, the finance ministry said pre-determined valuation for buyback of shares is not allowed in India.
The London verdict will come as a victory of sorts for Docomo, which is exiting India with a huge loss. It not only lost half of its investment in India, yen depreciation led to increased losses for the company. The annual accounts of Tata Teleservices and its listed subsidiary, Tata TeleservicesMaharashtra, for financial year 2015-16 are still not ready.
In a statement, Docomo said: “The award orders that Tata Sons pay damages to Docomo in the amount of approximately $1,172 million for Tata Sons' breach of the shareholders agreement, upon Docomo's tender of its entire stake in Tata Teleservices to Tata Sons or its designee.”
When contacted, a Tata Sons spokesperson said it had received the arbitration award, and it was studying it. “We will not be able to comment further at this stage, beyond maintaining our consistent position that Tata Sons has always been and continues to be committed to discharge its contractual obligations in a manner consistent with the law,” the spokesperson said.
In January 2015, Docomo had approached the London Court of Arbitration after the Tatas could not buy back the stake citing a Reserve Bank of India order that barred pre-agreed valuation of shares. Instead, going by a valuation by an independent valuer, the Tatas offered to buy back Docomo’s share for Rs 23.34 a share (a valuation of Rs 11,000 crore for the entire company), as compared to a pre-agreed valuation of Rs 58 a share or a valuation of Rs 27,000 crore.
As Rs 58 a share, Docomo’s 26.5 per cent stake was worth Rs 7,200 crore while the valuation by the independent valuer was Rs 2,915 crore. But with the London court award in its favour,Docomo may go back to Tokyo far richer, provided the Tatas do not appeal against the award or litigate further in the Indian courts.
In 2009, Docomo had invested $2.2 billion (Rs 12,740 crore) in Tata Teleservices, at Rs 117 a share, with an understanding that it would get at least half of its acquisition price if it exits the Indian company in five years. As the financial metrics of Tata Teleservices declined since Docomo's acquisition, its net worth completely eroded three years ago.
In April 2014, Docomo finally announced its plans to exit the venture and asked Tatas to buy back the shares in line with the 2009 agreement. Apart from Tata Sons, other Tata group companies such as Tata Steel and Tata Power hold close to 60 per cent stake in Tata Teleservices. Meanwhile, the Tatas invested another Rs 3,500 crore in Tata Teleservices in the past two years so that Tata Teleservices can meet its obligations to the banks. After the Tatas failed to find a buyer for its stake, Docomo then asked Tatas to buy back the shares. But when Tatas sought the Reserve Bank of India’s permission to buy back Docomo’s shares at the pre-determined valuation, the latter rejected it after consulting with the finance ministry.
| TROUBLED TIMELINE |
| 2009: NTT Docomo invests $2.2 bn in Tata Teleservices; agreement says Tatas will buy back stake at 50% of acquisition price if company fails to meet financial goals April 2014: Docomo to exit Tata Tele, asks Tatas to buy back shares; Tatas approach RBI to buy back shares at pre-agreed valuation Jan 2015: Docomo moves London Court of Arbitration against Tatas March 2015: RBI rejects Tata offer to buy back Docomo stake in Tata Tele at pre-agreed price June 2016: London court asks Tatas to buy back shares for $1.17 bn |
Citing Indian laws, the finance ministry said pre-determined valuation for buyback of shares is not allowed in India.
The London verdict will come as a victory of sorts for Docomo, which is exiting India with a huge loss. It not only lost half of its investment in India, yen depreciation led to increased losses for the company. The annual accounts of Tata Teleservices and its listed subsidiary, Tata TeleservicesMaharashtra, for financial year 2015-16 are still not ready.
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