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BW Businessworld

End Of Tatas' Telecom Ambitions?

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This could well be the beginning of the end for the telecom ambitions of the Tata group. Vodacom SA, a subsidiary of Newbury, England-based Vodafone has clinched the deal to acquire Tata Communications’ 67.32 per cent stake in South African fixed line operator, Neotel, for $ 676 million (Rs 3,955 crore).
 
The deal will allow Tata Communications, which has a global submarine cable network, to pare its $1.4-billion debt. Neotel is the second-largest fixed-line phone operator in South Africa, with 152,000 customers and 1,000 employees. While Nexus Connexion holds 19 per cent stake in the company, another 12.5 per cent is held by Communitel. The acquisition of Neotel will boost Vodacom’s data business as the company owns 15,000 km of high-speed fixed fibre and has access to sub-sea landing stations.
 
As Neotel had a net debt of 4.8 billion rand (as of March), the net proceeds for Tata Communications would be $120-140 million (2.2 billion rand), IDFC Securities said in a report. The deal is crucial for Tata Communications as the company needs money to pare debt. Neotel had a net debt of 4.8 billion rand as of March-end, according to an IDFC Securities report.
 
Tata Communications had first invested in Neotel in 2006 by paying around $250 million for a 26 per cent stake. Later, it increased its stake to 67 per cent. The deal requires the Centre’s approval as it holds a 26 per cent stake in Tata Communications, formerly Videsh Sanchar Nigam Ltd (VSNL). 
 
Commenting on the deal, Tata Communications Managing Director and Chief Executive Officer Vinod Kumar said: “It is in line with our financial objectives while paving the way for Neotel to improve its value proposition in the South African market.”
 
According to those in the know, this could well be the first step before the Tatas exit the telecommunications business entirely. It is believed that Vodafone will acquire Tata Teleservices Ltd listed company Tata Teleservices Maharashtra and Tata Communications. The Tatas have been looking to sell their debt-laden telecom operations in India for quite some time now. TTSL alone has a debt of close to Rs 20,000 crore and is only the seventh largest telecom service provider in India.