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.