Days of aggressive equity valuations has not come to an end yet. Japan's telco NTT DoCoMo has acquired 26% in Tata Teleservices (TTSL) for $2.7 billion which values the unlisted CDMA technology based telecom operator at $10.38 billion, even higher than public listed Reliance Communications which has almost double the number of subscribers compared to TTSL.
Whether this reflects the true worth of the company or a premium paid for late entry into India, will become apparent in the future, but it certainly means aggressive valuations have not disappeared from the Indian shores. For TTSL this could comes as a big boost as DoCoMo has a strong history with rollout of 3G services and with TTSL looking at GSM business going forward and 3G services a key component of future telephony, DoCoMo's presence in the company could bring a technological edge.
Tata Sons with 45% is the single largest shareholder of TTSL, followed by Tata Communications which holds 15% in the company. Singapore's sovereign wealth fund Temasek and Chennai-based investor C Sivasankaran hold 9.9% and around 8% in TTSL respectively. The rest is held by various Tata group companies.
The transaction comes as a particular sweetener for Temasek which has seen the valuations at TTSL rise threefold since it picked 9.9% in the company for Rs 1,500 crore in early 2006.
As per the deal, Tata Sons will sell 6% stake to DoCoMo and the remaining 20% will be through fresh issue of shares. This will bring down Tata Sons holdings to around 32% as against 26% for DoCoMo.
DoCoMo will also make a joint open offer along with Tata Sons to acquire up to 20% of public listed Tata Teleservices Maharashtra (TTML), in which TTSL holds 38%. This is despite no regulatory triggers for such an offer. Even after picking 26% stake in TTSL, DoCoMo will have an indirect stake of less than 10% in TTML as against 15% level which calls form mandatory open offer. TTML operates telecom services in Mumbai, Maharashtra and Goa circles.
At the ruling market rate—the TTML stock rose 7.6% to close at Rs 17.99 on Wednesday—a 20% stake will be valued at Rs 683 crore($145 million).