Finance ministry steps in to resolve Tata Tele valuation issue

India’s finance ministry is reportedly seeking to resolve a dispute between Japanese telco NTT Docomo and locally-based conglomerate Tata Sons over the valuation of the former’s stake in their joint venture Tata Teleservices.
The Reserve Bank of…

India’s finance ministry is reportedly seeking to resolve a dispute between Japanese telco NTT Docomo and locally-based conglomerate Tata Sons over the valuation of the former’s stake in their joint venture Tata Teleservices.

The Reserve Bank of India (RBI) has asked the ministry to clarify whether an agreement between NTT and Tata Sons entitling the Japanese telco to sell its shares for at least Rs72.5bn (US$1.14bn), half of its initial investment, is legal, the Business Standard reported without citing sources.

RBI had previously ruled that put options must be exercised based on the prevailing return on equity at the time.

NTT, Tata Sons, the holding company for Tata Group, and the finance ministry were not immediately available for comment.

The news follows NTT’s announcement on Monday that it has filed for arbitration with Tata Sons because of the group’s failure to find a suitable buyer for its 26.5% stake in Tata Teleservices, also known as Tata Docomo.

NTT said the request, filed with the London Court of International Arbitration, followed “repeated negotiations” with Tata Sons on the subject.

In its own statement, Tata Sons said it “has been committed to honouring its obligations to [NTT] and has taken every possible step keeping in mind the interests of all stakeholders and in accordance with law”.

NTT exercised its option last July to ask Tata Sons to sell is stake in the JV for Rs72.5bn or a fair market price, whichever was the higher. At the time, the Japanese company said Tata Teleservices had not met certain performance targets and gave the Indian conglomerate 90 days to find a suitable buyer.

Tata Sons was expected to buy NTT’s shares; however, the Indian company reportedly expected regulatory hurdles as a result of the RBI ruling on pre-fixed valuations.

The Business Standard report cited a source close to the development as saying that while the arbitration between NTT and Tata Sons could take another year to resolve, the operator could exit early if the finance ministry clears the Rs72.5bn valuation.