Tata Sons, the holding company of the $105-billion Tata group, will pump Rs 30,000 crore more into its money-losing telecom company, Tata Teleservices, by way of quasi-equity and/or inter-corporate loan in the current financial year.
The additional funds will be used by Tata Teleservices to repay its Rs 31,000-crore debts and pay spectrum fees. Tata Teleservices had on October 12 agreed to merge its consumer mobile business with Bharti Airtel on a cash-free and debt-free basis. It was also considering merging its enterprise business with Tata Communications and the broadband and fixed-line retail business with Tata Sky, apart from retaining its 32 per cent stake in Viom Networks, a cellphone tower company.
Soon after the merger was announced, executives at Tata Sons had made it clear that Tata Teleservices would not force its bankers to take a haircut and that it would remain an AAA-rated company.
tata sons In a meeting held on Thursday, the unlisted Tata Teleservices’ board approved raising of additional funds by issuing a combination of instruments, including optionally convertible preference shares, compulsory convertible preference shares, optionally convertible debentures and equity shares, in one or more tranches to its promoter Tata Sons. The fundraising will be subject to shareholders clearing the proposal in an extraordinary general meeting to be called soon, according to a banker privy to the plans. A Tata Sons spokesperson declined to comment on the developments.
The additional funding by Tata Sons comes at a time when its net profit declined by 72.4 per cent to Rs 832 crore in 2016-17. In the same financial year, the holding company took a hit of Rs 4,000 crore following NTT DoCoMo exercising its option to sell its 26 per cent stake in Tata Teleservices. But Tata Sons revenues were up 23.2 per cent to Rs 9,984 crore from Rs 8,104 crore, boosted mainly by other income received from the sale of its 24 per cent stake in its insurance venture, Tata AIA Insurance.
Bankers said it would not be a problem for Tata Sons to raise funds keeping in mind its 73.5 per cent stake in its profit-churning venture TCS, which had a market value of Rs 4.93 lakh crore on Friday.
In a separate notice to the stock exchanges, Tata Teleservices listed subsidiary, Tata Teleservices Maharashtra, sent a notice to its shareholders for a postal ballot to raise its borrowing limit to Rs 20,000 crore from Rs 15,000 crore.
The funds raised through one or more options like CCPS/NCDs/ICDs among others would be used for repayment/prepayment of existing debt/loans of the company, including deferred payment liability to the government for spectrum, the company said. Tata Teleservices Maharashtra also proposed to accept/avail inter-corporate deposits/loans up to an aggregate additional amount of Rs 20,000 crore in one or more tranches from the promoters. Tata Teleservices holds a 74.36 per cent stake in Tata Teleservices Maharashtra and its stock is up 31 per cent, year to date, despite facing competition from bigger rivals (see chart). The company is valued at Rs 1,535 crore, according to its share price on Friday.
Resolving the telecom business was the top priority for the Tata group after its new chairman, N Chandrasekaran, took charge this February.
In the financial year ending in March 2017, Tata Teleservices net worth had eroded by Rs 11,650 crore, the highest for any company in the Indian telecom industry — as rising finance costs had corroded its profits, ultimately leading to a merger of its mobile business with Bharti Airtel. The company’s mobile business had around 3,000 employees.