Tata Tele rights issue to fund expansion

Tata Sons may subscribe to largest chunk of shares.

The Tata group is pumping more money into Tata Teleservices. While the investments will allow Tata Teleservices to go in for a pan-India presence, the shareholding pattern will also change.

Sources close to the Tata group claim that Tata Teleservices will soon go in for a rights issue, with Tata Sons expected to subscribe to the largest chunk of shares being offered.

Tata Teleservices is in the process of investing Rs 2,400 crore in the 12 new circles, where it expects to roll out services in the next three months through a mixture of debt and equity. But the company will need more resources to sustain and consolidate these operations in the new circles. Tata Teleservices already has a presence in eight circles.

As a result of Tata Teleservices' growing appetite for equity and debt funds, the shareholding of Tata Power, the largest single investor in the company in 2002, has fallen from 49.85 per cent to 34 per cent in early 2004 and to 18.6 per cent now.

Tata Steel's stake in Tata Teleservices has gone down from 7.97 per cent in 2002 to 3.72 per cent in July, 2004. Similarly, Tata Motors' stake has slipped from 0.33 per cent to 0.07 per cent.

The stake of the Tata group listed companies in Tata Teleservices' larger equity base has fallen because they have stopped putting more money into the telecom company. But the group holding company, Tata Sons, has been investing in Tata Teleservices for its expansion.

Tata Sons' stake in Tata Teleservices is now 47.69 per cent in Tata Teleservices' current equity capital of Rs 3,226.60 crore. The holding company did not have any equity in the firm in 2002.

Other group companies that have an interest in Tata Teleservices are Videsh Sanchar Nigam Ltd (VSNL), Tata Power, Tata Industries, Tata Steel, Tata Chemicals and Tata Motors.

VSNL holds a 19.9 per cent stake, having invested Rs 835.8 crore. "If it has to maintain the equity stake at the same level of 19.9 per cent , VSNL will have to pump in more funds," sources claim.

VSNL had set itself a deadline of 2007-2008 to invest up to Rs 835.8 crore in Tata Teleservices. But it subsequently advanced its deadline to June 30, 2004.

However, a VSNL executive claimed that the company had till now invested more than Rs 700 crore and "any further investment decisions beyond the board-approved Rs 835.8 crore will have to be taken by the promoters and the board."

Tata Industries, the group's arm for new ventures as well as the initial promoter of Tata Teleservices, too, has also been scaling down its investment in the company. From a 41.52 per cent stake two years ago, Tata Industries now just holds 9.99 per cent.

Tata Teleservices has seen its losses mounting to Rs 786.4 crore in the year ended March 31, 2004, against Rs 381.6 crore in the previous year. It expects its losses to continue in the foreseeable future on account of a significant expenditure on capital and operational costs.