The Reserve Bank of India has given an in-principle approval to Tata Sons’ proposal to acquire NTT DoCoMO’s stake in Tata Teleservices (TTSL) at the price agreed to by the two parties in 2009.

The RBI has observed that though the transaction is not in line with its 2014 circular, it is inclined to accept the proposal to protect investments given the strategic relationship with Japan.

“The larger issue here is of a fair commitment in the contracts in relation to an investment and a downside protection of an investment, rather than an assured return. Besides, our strategic relationship with Japan in recent times in relation to FDI flows is also a matter to be kept in view. In future, in all such cases, similar principles shall be applied,” the RBI said in a letter to the Finance Ministry seen by BusinessLine . The RBI’s clarification could help Tata Sons to fulfil its agreement with the Japanese company.

Arbitration filed

NTT DoCoMo had filed for arbitration at the London Court of International Arbitration alleging that Tata Sons had failed to fulfil its obligation.

In April 2014, NTT DoCoMo announced plans to sell its entire stake in TTSL, exiting India five years after entering the country. The exit came after the Indian company failed to achieve certain performance targets. In March 2009, the Japanese company had acquired the stake in TTSL for $2.7 billion (₹13,070 crore at the then exchange rate).

Under the terms of the shareholder agreement, the Tatas had to find a buyer by December 2014 and if it failed to do so, it had to buy those shares from DoCoMo. The Japanese company is entitled to get at least ₹7,250 crore for the entire stake, which is 50 per cent of its total acquisition price, from TTSL.

The key hurdle was an RBI circular, issued in January 2014, which stated that when the put option is exercised, it should be based on the prevailing return on equity at the time the option is exercised and not based on a pre-determined valuation. Tata Sons had engaged Pricewaterhouse & Co LLP to determine the fair value.

According to the report submitted by the consultant, the fair value for the shares held by NTT DoCoMO is ₹23.34 a share. However, under the 2009 shareholders’ agreement, the value was pegged at ₹58.05 a share.

Tata Sons had, therefore, written to the RBI seeking permission to purchase the shares at the higher valuation to honour the commitments under the agreement.

There is, however, one final approval required from the Finance Ministry before the Tatas can buy back the shares.

According to industry sources, other foreign players, including Vodafone, Telenor and Sistema, could be in the running to acquire Tata Teleservices.

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