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Our Bureau

Mumbai, Nov. 12 Japan’s largest mobile operator NTT DoCoMo on Wednesday became the latest entrant in the world’s fastest growing mobile telephony market when it picked up a 26 per cent stake in the city-based Tata Teleservices (TTSL) for a consideration of $2.7 billion or Rs 13,070 crore.

This deal would value TTSL, with its customer base of 30 million, at over $10 billion.

This is the third instance in the last two months, of a foreign telco picking up significant stake in an Indian company. It appears that the global liquidity crunch has not yet negatively impacted investor interest in the Indian telecom sector, said Mr Naresh Singh, Principal Research Analyst, Gartner Inc.

(Etisalat purchased a 45 per cent stake in Swan Tele for $900 million (Rs 4,320 crore) in September, while Unitech sold 60 per cent stake in its telecom venture for $1.27 billion (Rs 6,120 crore) to Norway-based Telenor.)

DoCoMo will make an open offer to acquire up to 20 per cent of the outstanding equity shares of Tata Teleservices Maharashtra Ltd (TTML), the listed subsidiary of TTSL which has operations in Maharashtra even though it is not required to do so according to SEBI guidelines. TTSL holds 37.65 per cent stake in TTML.

SEBI guidelines say that companies have to make an open offer only if the acquiring party picks up more than 15 per cent stake in the target company. In this case, DoCoMo will only acquire 9.9 per cent in TTML as a consequence of buying into TTSL.

Since the company is going ahead with an open offer, it could mean that the intention is to get TTML delisted, merged into TTSL which could subsequently be listed, analysts feel. TTSL officials were not available to confirm this.

This deal will give the much needed equity boost to TTSL which has licences for launching GSM services in eight circles, said Mr Priyank Chandra, Research Analyst, Dolat Capital Market Ltd.

The TTSL acquisition seems to be another step by NTT DoCoMo towards diversifying from the saturated Japanese market, as this is the second big ticket acquisition made by the Tokyo-headquartered company in the last six months.

However, analysts feel that the deal is highly over valued as the enterprise value (EV) per subscriber in this deal is at a premium to that of all the major telcos in the country. The EV/subscriber value for TTSL is at a premium of 6.1 per cent to that of the telecom industry leader Bharti Airtel, said a telecom analyst. (EV/subscriber is a popular metric for valuation in high growth markets as it reflects the potential for cash-flows.)

DoCoMo has been looking to enter the Indian markets for quite some time now. In December 2006, NTT DoCoMo, and the erstwhile Hutchison Essar (Hutch) had entered into an agreement under which Hutchison Essar was supposed to launch the i-mode mobile Internet service in India in 2007. However, the launch never happened as Vodafone acquired a 67 per cent stake in Hutchison Essar for $11.1 billion in February 2007.

More Stories on : Telecommunications | Mergers & Acquisitions

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