Friday, 14 November 2008

Tata Tele-NTT DOCOMO deal: What's it about?

NTT DOCOMO Inc would pick up 26% stake in Tata Teleservices for USD 2.7 billion.

CNBC-TV18's Sunita Nagpal and Varinder Bansal explain in detail, the nature of the deal:

The deal is a combination of fresh equity and stake sale by existing shareholders. The deal values Tata Teleservices at USD 10.4 billion. TTSL has a subscriber base of 30 million.

NTT DOCOMO says it would acquire 20% stake via fresh equity and 6% from exisiting shareholders. The company has said that the open offer price would be as per the Sebi’s (Securities and Exchange Board of India) prescribed minimum price on relevant date. Tata Teleservices would use the funds infused for strategic expansion and marketing efforts.

TTSL Shareholding:
Tata Sons: 45.4%
Temasek : 9.9%
C Sivasankaran: 8%
Tata Communications: 15%
Tata group companies: 21.7%
DOCOMO is strong in 3G services. The 3G auction is likely in January 2009. The foreign partner is important for Tata Teleservices’ 3G plans.

Tata Tele’s FY08 revenues stood at Rs 5378 crore. It’s net loss was Rs 9177 crore (Carried forward loss was Rs 7363 crore).

Tata Teleservices has 29.3 million subscribers. Its FY08 revenues are at Rs 5378 crore. It offers CDMA services in 20 circles. The company’s GSM launch is in early 2009.

Tata Teleservices holds 38% stake in Tata Tele Maharastra. DOCOMO’s indirect stake in TTML would be 9.88%. DOCOMO and Tata Sons would make an open offer for 20%. The open offer price is at Rs 24.70; the acceptance ratio would be at 58%. There is current freefloat of 34%.

Tata Teleservices can use the funds for capex and 3G auction. TTSL and TTML has announced a capex of USD 2 billion in the next 24 months. Out of this, USD 1.5 billion for rolling out GSM network and remain expanding CDMA network.

DOCOMO says TTSL GSM roll out to provide significant upside. Its penetration would increase from current 30% to 54% by 2012.

The acceptance ratio is seen at 58.2%. The residual value per share is Rs 16.5 per share, if purchase price is Rs 20 per share and cost is assumed 1.5% per month for four months. The open offer is closing on January 27 and un-tendered shares will come to account in February. Most of the arbitrageurs are waiting for stock to cool down. The arbitrageurs are advising covered call strategy as 25 call trading at 20 paisa and 20 call at Rs 1.15.

Vedika Bhandarkar, MD and Head-Investment Banking at JPMorgan India, said, “The opportunity is to partner with a nation wide carrier. A lot of the recent transactions which we are referring to are really new licenses where there is no existing operator, no existing management team and all of it needs to be built up. So this is an opportunity to partner with a nation wide carrier which is no 5 or no 6 in terms of coverage in terms of subscriber base and so there is a lot of head start which DoCoMo gets right on day one. Its not like they have to come and build a very robust network has already been built.”

Source: Moneycontrol

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