A request by Tata Communications last month to relax the norms to raise over Rs 2,000 crore is yet to get the approval of the government, which holds 26 per cent stake in the telecommunications provider. But the stalemate is unlikely to affect the company’s operations or financial health.
“Tata Communications has sought to raise additional funds to support some of its growth and investment projects and is working with key stakeholders towards the same. While we cannot comment on specific numbers, Tata Communications has approached its promoters, including the government, for enhancement of borrowing limits to the levels permitted under the Companies Act" according to a source close to the development.
However, Tata Communications' financial health continues to remain sound; it does not face any liquidity crunch in managing its business operations," the company spokesperson said in an e-mail reply.
The company, formerly known as VSNL, had approached the government for the relaxations early last month. The amount was needed for its WiMax broadband initiatives.
The project is in a limbo as the government is yet to announce the date of the spectrum auction. The stalemate on spectrum allocations would also make Tata Communications rethink on its fund-raising strategy, a source in the company said.
However, according to the source, Tata Communications is “cash positive” as it generates around Rs 1,500 crore per year (Rs 125 crore per month).
"Moreover, it had recently raised around Rs 1,750 crore (Rs 1,500 crore through debt in November 2008 and Rs 250 crore through bonds in January 2009), which can be used in case of a necessity,” the source said.
On reports that Tata Communications was planning to raise Rs 5,100 crore, the source said: “We don’t need so much money. There is a misunderstanding as Rs 5,100 crore is the capex for two financial years -- FY09 and FY10. Of this, around Rs 3,000 crore has already been spent.”
The government was not against the restructure and was examining the company's proposal, the source said.
Tata Communications' net profit had tripled in the third quarter ended December 31, 2008 to Rs 81 crore. But the company has loans of around Rs 4,800 crore. A top official said these were long-term loans and in certain cases the repayment cycles will only begin by 2011.
However, when compared with other telecom majors, the company’s profits seems to be meagre. Where did it slip?
According to Gartner Principal Research Analyst Naresh Singh, “Tata Communications had monopoly for a long time, but with more players coming in national long distance and international long distance sectors, there is a drag on the company’s revenues.
The company had made investments in cables across the world and its overseas acquisitions -- such as Tyco Global Network (TGN) and Teleglobe International -- have not started giving it profits”.
In 2005, Tata Communications had acquired TGN for $130 million (Rs 550 crore) and Teleglobe International Holdings for $239 million (Rs 1,000 crore).
The company insiders are not disputing this. “During the time of acquisitions, we had stated these buys would be profitable only after a three-year period, which means it should begin to be profitable from this year onwards,” they said.
“Telecom is not a simple business, and primarily it’s also a long-term business, especially in the case of Tata Communications. The company is not in a services provider, where in subscriber additions come in every month, but in a space which needs a lot of technical expertise and manpower,” Singh added.
Another telecom analyst, declining to be quoted, said: "With WiMax and its broadband rollout completed -- which would take another year depending on the policies -- Tata Communications could make large profits only by 2010."
