AGR verdict: Defunct telecom biz drains two-thirds of Tata Sons dividends

Parent firm to pay fresh Rs 9,987-cr liability of Tata Teleservices

The financial liability of the Tata group’s now defunct mobile telephony business continues to drain a large portion of the cash that Tata Sons earned by way of dividend and share buybacks from various group companies since the listing of its cash cow, Tata Consultancy Services in 2004.

With the latest Supreme Court ruling on adjusted gross revenues (AGR), the total financial liability of Tata Teleservices is now equivalent to nearly two-third of Tata Sons all dividend income earned from group’s listed firms in past 15 years. The fresh liability of Tata Teleservices is estimated at Rs 9,987 crore.

Tata Sons’ total liability for its telecom arm would now be around Rs 60,000 crore against its cumulative dividend income of around Rs 93,000 crore from the group’s various listed companies since 2004.

Of this, TCS alone contributed nearly Rs 83,000 crore to its coffers by way of equity dividend and proceeds from share buyback since its listing.

Tata Sons declined to comment on the SC ruling and its impact.

Since 2014-15, Tata Sons has already written-off nearly Rs 50,000 crore worth of its investment in Tata Teleservices in five tranches. The holding company used this accounting entry to pay-off nearly Rs 50,000 crore worth of bank debt and other dues of the Indian government owed by Tata Teleservices to various lenders last year.

With the latest SC ruling, Tata Teleservices will have to again seek financial help from its holding company to pay the Department of Telecommunications (DoT) as it has already sold its wireless business to Bharti Airtel for free, say group insiders.

Tata Sons just received a dividend bonanza of Rs 12,161 crore from its subsidiary TCS for the current financial year and was planning to use it to reduce its rising debt, and make incremental investments in the infrastructure and aviation businesses.

With a new bill from Tata Teleservices, the holding company will have to raise fresh debt from banks to meet the liability or use the dividend received from TCS to pay the DoT.

The new bill also comes at a time when the holding company’s cash and equivalents declined by 59 per cent in the last financial year to Rs 3,776 crore as of March 31, 2019.

One of the main reasons for the drop in its cash reserves was the write off of investments in its closed wireless telephone business.

During FY18 and FY19, on a cumulative basis, Tata Sons wrote off investments of about Rs 43,400 crore in Tata Teleservices, which was mainly funded by TCS’s dividend boosters and sale of TCS shares in March 2018.

The write-off resulted in an increase in net debt as on July 2019 to Rs 30,488 crore from Rs 27,870 crore as on March 31 this year.