India: Tata group looks to exit telecom, in talks with Airtel

Tata logos are seen at their flagship showroom before the announcement of their Q3 results in Mumbai February 14, 2013. REUTERS/Vivek Prakash/Files

The Tata group is looking to exit its telecom business, which hasn’t really paid off, and is in talks with Bharti Airtel Ltd, three people familiar with the matter said.

The Economic Times first reported on Friday that the Tata group and Bharti were in discussions to form an alliance across telecom and direct-to-home (DTH) television.

The three people (all spoke on condition of anonymity because the talks are still in their initial stages despite having been on for months, according to them) ruled out an alliance or a merger between Bharti and the Tata group citing liabilities on the books of Tata Teleservices Ltd and Tata Communications Ltd.

For Tata, it is all about exiting its telecom businesses, the three added. The inclusion of Tata Sky (Tata’s DTH business) is just to sweeten the deal for Airtel, which has its own DTH business.

The three said Bharti was definitely interested in all of Tata’s telecom assets: spectrum in 800 Mhz, towers, sea cables and around 45 million active subscribers.

That will help the Sunil Mittal-led company to bridge the gap with the combined entity of Vodafone India Ltd and Idea Cellular Ltd, which will become the country’s largest telco once the merger is complete.

“Talks (between Tata and Airtel) have been going on for six months,” said one of the three, a Mumbai-based investment banker.

“The Tatas wanted Bharti to take over the entire telecom business. The question is at what value? What are Tatas left with? Tatas would want to clear the debt but the telecom business is not sustainable for them. It does not make sense to put in more money in the business. So, Tata Sky is just a value-add to make the deal more lucrative,” the banker added.

Airtel declined to comment. A Tata Sons spokesperson declined to comment on “market speculation”.

The banker added that Tatas had made a proposal to banks that they will infuse Rs14,000 crore in telecom business, but the fine print said their equity infusion will be milestone-based.

“Tatas wanted banks to reduce the average cost of borrowing from 11% to 9% and offer a longer repayment period. The banks said that the Tatas must bring in equity first before asking for any relaxation,” the banker added.

Tatas have also been in talks with banks to refinance their loan but it is learned that State Bank of India, which has maximum exposure to their telecom business, has ruled out any such option, leading other banks to stay away from any such move.

The second person, an executive in the telecom industry who is familiar with the talks, said while the deal is primarily about telecom, the combination of Tata Sky’s DTH business with its own would make Airtel the market leader in the business.

But if there is a transaction, it would probably end up being an outright purchase, said a third person, who works for one of Bharti’s rivals.

Tata’s telecom business has debt of Rs31,000 crore and losses of Rs3,400 crore a year, this person added. That effectively rules out a merger, he said.

The Tatas have also been in talks with Vodafone in the past to sell their telecom business. The talks had fallen through as Vodafone wanted Tatas to clear their liabilities first, the third person said.

This person added that Indian government too holds a significant stake (26%) in Tata Communications Ltd by virtue of selling a 45% stake in Videsh Sanchar Nigam Ltd to the Tatas in 2002 for about Rs1,500 crore.

Bharti Airtel shares were up 0.93% to Rs384.95 at 11:55am on Friday while the benchmark Sensex was down 0.15% to 31,320.97 points.

Also Read: 

Tata-DoCoMo truce may leave Japanese firm with $790m to invest in India

Vodafone, Idea merge to create India’s largest telecom player

This article was first published on Livemint.com

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In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

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  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.