Tatas May Have To Cut Idea Stake Below 10%

[vmsanghrajka 0]

The TATA Group may have to reduce its stake in Idea Cellular to less than 10% over the next three to four months. This is believed to be part of an undertaking given by the Tatas to the government to ensure compliance with licence conditions which stipulate that the same person or entity cannot hold more than 10% in two telecom operators (telcos) within the same circle, according to industry sources.

The Tatas currently have interests in two telcos. Its flagship telecom company is Tata Teleservices (TTSL), a CDMA mobile operator with a national footprint. In addition, it holds over 48% in GSM operator, Idea Cellular. The AV Birla group holds the remaining stake in this company.

Incidentally, Anil Dhirubhai Ambani group also operates GSM and CDMA licences in the same circles, but under different companies (Reliance Telecom and Reliance Infocomm, respectively). It is, however, not known if the same stipulation would apply to the ADA group.

At the time of migration to the Unified Access Service Licence, CDMA services were classified as another variant of mobile telephony on par with GSM — prior to this they were referred to as wireless in local loop, WiLL offering, under the basic licence.

The application of the 10% rule kicks in depending on when the networks were built. Industry sources said that since both the GSM and CDMA networks of the ADA group (earlier part of Reliance) were built prior to the Unified Access Service Licence, the rule may not apply. However, there does not seem to be clarity on this.

Last August, the DoT wrote to the Tatas regarding its stake in Idea Cellular. In response, the Tata Group is believed to have recently written to DoT assuring them that they would be reducing the Group’s shareholding (direct or indirect) in Idea Cellular by the end of the first quarter of the next fiscal (FY07).

Reliable sources confirmed that the Tatas plan to comply with the licence conditions.Sources said both the Tatas and the Aditya Birla Group have covenants with lenders preventing them from reducing their shareholding. Industry sources said that negotiations were on to get these restrictions removed.

“We are initiating steps to seek the release of these restrictions imposed by the lenders and to seek their permission to reduce the equity holding of the Tata Group to less than 10% in Idea Cellular,” says a communication sent by the Tatas to the DoT.

However, the Tata Group is unlikely to offload its entire shareholding in Idea. It is likely to retain less than 10%. Sources said the Tatas might restructure their holding in a manner which, while complying with the DoT guidelines, does not require them to sell out completely.

Investment banking sources say the Tatas have been in discussions with potential buyers for selling their stake in Idea for some time now. While some say the Tatas are in talks with private equity investors, others maintain they are in talks with some Malaysian telcos.

The Aditya Birla Group and the Tatas last year bought out the 33% stake held by US telco Cingular in Idea. There has long been speculation that Idea may opt for an initial public offer (IPO). That could also provide a potential exit route for the Tata Group.

News Source: The Economic Times