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Temasek is hot on Tata Tele

Singapore govt firm may buy 20% to 26%; valuation at $4 bn

india Updated: Jan 19, 2006 01:16 IST

Singapore government’s investment arm Temasek Holdings has emerged as the frontrunner to pick up from 20 to 26 per cent stake in Tata Teleservices Ltd, which has nearly eight million fixed line and wireless subscribers.

Tata Teleservices, Tata Group’s unlisted telecom arm which includes Tata Teleservices Maharashtra (the listed arm of the company), will divest equity in favour of Temasek at an astronomical valuation. This confirms what a top Tata source had told the Hindustan Times some months ago. Temasek leads a pack of three financial investors who are actively conducting a thorough due diligence with Tata Tele officials. Sources close to the developments told the Hindustan Times, “The deal can fructify this week or within three months, it is at that stage. Each of these guys has his own set of advisors and is working on his own valuation numbers. So, I cannot comment on the valuation.”

A financial investor always appeared to be a better bet for Tata Tele minus Tata Tele Maharshtra because this divestment will ultimately lead to an IPO at a later date. Tata Teleservices is owned 80.1 per cent by the Tatas through Tata Sons, Tata Steel, Tata Power and Tata Industries. Tata Sons and Tata Power have the largest shareholding of the Tata companies in TTSL. The balance 19.9 per cent is with VSNL. Sources in the Tatas added that the divestiture would take place on the Tata side since VSNL is a separate entity. The view of VSNL’s board will be incorporated in the sale in any case.

The Tatas believe that greater clarity should emerge in the Indian telecom space going forward with issues like spectrum and ADC to be resolved. The source said, “Let the final offer come in, let me reiterate that we haven’t closed any deal as of now. Yes, we are in a very serious dialogue with three players including Temasek, but the final offer is being studied.”

However, if one were to do a back-of-the-envelope valuation for TTSL, one will have to include its subsidiary Tata Tele Maharashtra. At an average ARPU of Rs 500, the valuation of TTSL including TTSL Maharashtra would be in the vicinity of $4 billion.

Temasek as the favourite is expected to fork out close to $1 billion for a 26 per cent stake which would translate into a sum of Rs 4,500 crore.

It is believed that among the valuation methodologies being worked out, the key ones are based on the subscriber numbers and average revenues per user, asset value, future cash flows and entry value because the Tatas are very clear that they would be charging a premium for what they reckon is a very valuable franchise. Tata Teleservices is present in 20 circles.

A divestiture of 26 per cent in favour of a financial investor in the shape of a private equity firm could result in a cash infusion of close to $1 billion. Tatas presently have a wide variety of telecom vehicles — Tata Tele and its subsidiary Tata Tele (Mah), VSNL which includes two acquisitions Tyco and Teleglobe and a tad over 49 per cent in the GSM joint venture with Aditya Birla Group in Idea Cellular.

The move is obviously a precursor to two things — the possible merger of TTSL with VSNL (something that chairman Ratan Tata has hinted at) and a listing of Tata Teleservices sometime in the future. Since Tata Tele is a closely held company, its financials are not available.

But as of March 31, 2004, Tata Tele which has been in high capital intensive mode was showing accumulated losses. However, ever since Tata Tele announced its two year incoming free scheme, numbers have galloped on the wireless front.

First Published: Jan 19, 2006 01:16 IST