Tata Teleservices shares jump 20 per cent after Tata group lowers exit offer price for Docomo

The shares of Tata Teleservices (Maharashtra) (TTML) rallied at about 20 per cent and locked in the upper circuit on Monday (20th July). This is in response to the news of Tata group's offer to buy 26.5 per cent stake of Docomo at Rs 23.34 per share, which is about 60 per cent lower than the earlier offer of Rs 58 per share. The stock closed on Friday (17th July) at Rs 7.05 and touched Rs 8.46 in the BSE on Monday.

As per the reports, Tata sons made the new exit offer valuing the company at Rs 11000 crore. The exit offer value would see an 80 percent erosion of Docomo's original investment in TTML. As far as  TTML is concerned the proposal will result in less cash outgo from the struggling Indian telecom company's balance sheet, which is under huge debt apart from the cut throat competition from industry leaders.

Earlier in November 2008 NTT Docomo, which serves over 64 million mobile customers in Japan had acquired a total 26.5 per cent stake in TTML and Tata sons for USD 2.2 billion, which amounted to  Rs 117 per share. The Joint venture was signed with an understanding that it would get at least 50 per cent of its acquisition price if it exits the Indian company in five years.

On 25th April 2014 NTT Docomo had announced, that they were forced to sell all of their shares in Tata Docomo and exit the Indian Telecom Company as they had incurred a total loss of USD 1.3 billion.

As per the agreement dated 7th July 2014, Docomo requested Tata sons to find a suitable buyer to purchase its 26.5 per cent stake in TTML for 50 per cent of the acquired price, at USD 1.1 billion or a fair market price, whichever is higher. But Tata sons failed to fulfil its obligation to find a buyer within the stipulated 90 days and in November 2014 applied to the Reserve Bank of India (RBI) to purchase Docomo's 26.5 per cent stake at Rs 58.045 per share, in the interest of fair commitment in contracts, but seeks the finance ministry’s approval.

On 3rd January 2015 NTT Docomo submitted a request for arbitration in the London Court of International Arbitration to get valuation at Rs 58 per share.

In March 2015, the RBI had rejected the Tata Sons' proposal to pay a price which is higher than the 'fair value' to buy out NTT Docomo's stake in their telecom joint venture after the finance ministry told the central bank to 'stick to the rules,' leaving the issue to be resolved through arbitration.

The TTML is a loss making company whose net worth completely eroded two years ago. TTML reported a loss of Rs 615.25 crore for FY15. Its losses were mainly by a high interest cost, which is Rs 650.78 crores for FY15.