An international arbitration panel has ordered Tata Sons to pay $1.17
billion (₹7,950 crore) in damages to Japan’s NTT DoCoMo Inc. for
breaching an agreement related to their telecom joint venture – Tata
Teleservices.
This could put further pressure on the Tata group to sell the telecom
business, which has been reeling under losses and intense competition.
The dispute dates back to January 2015 when Japan’s NTT DoCoMo filed an
arbitration request with the London Court of International Arbitration
against Tata Sons for failing to find a buyer for its stake in Tata
Teleservices.
In April 2014, NTT DoCoMo announced plans to sell its entire stake in
TTSL, exiting India five years after entering the country. The exit came
after the Indian company failed to achieve certain performance targets.
Under the terms of the shareholder agreement, the Tatas
had to find a buyer by December 2014 and if it could not then buy
DoCoMo’s stake.
NTT DoCoMo had acquired a 26.5% stake in TTSL for $2.7 billion
(₹13,070 crore at the then exchange rate).
The Japanese company is
entitled to get at least ₹7,250 crore (at ₹58 per share) for the entire
stake, which is 50% of its total acquisition price, from TTSL.
Tata Sons had applied to the RBI to purchase NTT DoCoMo’s stake but the
central bank ruled that when the put option is exercised, it should be
based on the prevailing return on equity at the time the option is
exercised and not based on a pre-determined valuation.
Tata Teleservices had losses of over ₹6,000 crore at that time and its
valuation would have been much lower than what the Tatas had agreed to
pay the Japanese firm.
The court ruling means that the Tatas will have to pay
DoCoMo slightly more than what was agreed under the shareholders
agreement.
This could also prompt the Tatas to put Tata Teleservices on the block
provided it is able to settle some part of its huge debt pile of over
₹50,000 crore.
The other option for the Tata group would be to challenge the order in a higher court.
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