Capital Restructuring in Tata Teleservices

Nikunj Barnwal

Agenda

• About Capital Restructuring• Overview of TTSL• Capital Restructuring at TTSL• Usage of the fund• Source of the fund• What happened earlier…• Claims

Aspects of Capital Restructuring

• Leverage of the company

• Investment pattern

• FDI participation

• Divestitures

Benefits

• Better financial muscles

• Access to greater/better technology

• Focus on core competencies

Motives

• To enhance liquidity• To lower the cost of capital• To reduce risk• To avoid loss of control• To improve shareholder value

Overview

• a part of the Tata Group of companies, an Indian conglomerate

• The company forms part of the Tata Group's presence in the Telecommunication Industry in India, along with Tata Teleservices (Maharashtra) Limited (TTML) and TATA COMMUNICATIONS LTD.

Overview Contd…

• Tata Teleservices is part of the INR Rs. 2,51,543 Crore (US$ 62.5 billion) Tata Group, which has a committed investment of INR 36,000 Crore (USD $7.5 billion) in Telecom (FY 2006), the Group has a formidable presence across the telecom value chain.

Capital Restructuring

• TTSL had written off Rs 5,141.28 crore, and will write off Rs 1,648 crore more as it goes ahead with the third leg of its capital restructuring programme which comes in the wake of a November announcement by NTT DoCoMo Inc. that it was paying $2.7 billion (Rs13,070 crore) for a 26% stake in the company

Usage of the fund

• It will use gains of Rs1,648.74 crore from revaluing its equity investment in listed subsidiary Tata Teleservices (Maharashtra) Ltd, or TTML, to write off more book losses and unabsorbed depreciation

• The company has till 15 March 2009 to complete this restructuring.

• All such schemes have to be approved by high courts, according to India’s Companies Act

Source of the fund

• TTSL has explained that its investment in 714.3 million TTML shares, which was valued at Rs 387.05 crore or about Rs 18 per share, was in September revalued at Rs 28.5 per share, based on six-month average market prices on the National Stock Exchange (NSE).

• Following the revaluation, this investment has grown to Rs 2,035.80 crore, an appreciation of 426%.

What happened earlier…

• TTSL’s earlier plan had envisaged halving its equity capital to Rs 3,173.57 crore and using Rs 1,967.71 crore from its share premium account to write off past losses and unabsorbed depreciation.

• TTSL’s losses increased from Rs 8,547.49 crore as on 30 September 2007 to Rs 9,177.17 crore as on 31 March.

Claims…

• TTSL reiterated in its petition that “no one will be prejudiced if the proposed scheme of arrangement and restructuring is sanctioned and the sanction of the scheme will benefit the company and its shareholders and will have no adverse impact on the creditors of the company.”

• TTSL has also maintained that the “reduction in capital does not involve any financial outlay/outgo” and is “only in the nature of a book entry.”

Web References:-

• http://www.universalteacherpublications.com/mba/free-project/p3/page8.htm

• http://www.businessdictionary.com/definition/capital-restructuring.html

• http://www.livemint.com/2008/12/15234627/Tata-Tele-to--now-write-off-Rs.html?d=1

Have a nice evening…-Nikunj