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Ending months of discussions, Tata Communications has signed an agreement to sell its stake in Neotel, South Africa’s second biggest fixed-line phone operator, to Vodacom SA for an enterprise value of 7 billion rand (about ₹3,950 crore).
The deal, which is expected to close by the end of this fiscal year, is significant as it is a major divestment by the Tata group after Cyrus Mistry took over as Chairman.
It could not be immediately ascertained how much Tata Communications will get from the deal after debt and other expenses are taken into consideration. Tata Communications holds a 68 per cent stake in Neotel. Vodacom SA is a subsidiary of British telecom major Vodafone Group.
Tata Communications and Vodacom have been in negotiations since September 2013, after the Tata group company decided to exit the venture as part of its strategy to focus on its core area of providing international telephony services.
The deal requires the Centre’s approval as it holds a 26 per cent stake in Tata Communications, formerly Videsh Sanchar Nigam Ltd (VSNL).
The structure of the deal and its commercial terms are also subject to regulatory and competition authority approvals and the parties will immediately commence the necessary processes in this regard, Tata Communications said in a statement.
“It is in line with our financial objectives while paving the way for Neotel to improve its value proposition in the South African market,” said Tata Communications Managing Director and Chief Executive Officer Vinod Kumar.
Tata Communications had acquired the stake in 2006, after the South African government deregulated the telecom market, by paying $250 million. The company later raised its stake to 68 per cent.
Nexus Connection and Communitel are the other investors in Neotel. The acquisition of Neotel will boost Vodacom’s data business as the company owns 15,000 km of high-speed fixed fibre and has access to sub-sea landing stations.
The deal is crucial for Tata Communications as the company needs money to pare debt. Neotel had a net debt of 4.8 billion rand as of March-end, according to an IDFC Securities report.
On Monday, Tata Communications shares closed up 3.74 per cent, at ₹304.80 apiece, on the BSE.
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