Docomo call to up JV stake after results

Japanese giant NTT Docomo will decide on increasing stake in Tata Teleservices after seeing the latter's financial and operational numbers for FY12, due in the coming weeks.

Docomo has the option to raise its shareholding to 35% four years after buying 26% in the Indian telco for $2.7 billion. Docomo will have 45 days - after Tata Tele comes out with earnings for the last fiscal - to decide whether or not to buy additional shares.

Tata Tele, India's fifth largest telecom player, reported Rs 1,330 crore loss in FY11, making it the worst bleeding entity within the diversified Tata Group. Docomo's call on increasing the stake is also linked to operational and expansion targets.

Docomo's decision will have a significant bearing on the future of the JV with Tatas. First, this will mean the foreign partner will be on course to emerge as the single largest shareholder with 49% stake (when it can exercise another option) by 2014. Second, Docomo cannot force a buyback on Tatas once it raises stake to 35%, which it can otherwise two years from now.

The JV agreement gives Docomo the right to increase but does not place any obligation to do so. A few months back, Tata Tele unified its range of services and products under Tata Docomo brand, highlighting the Japanese partner's continued interest in the company.

Docomo can buy more shares at a fair market value from the Tata Group, which through several entities holds 60% stake in Tata Tele.