Deals

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

What started as the government poking its nose into a straightforward commercial arrangement is threatening to become another blot on India's record of dealing with foreign investors -- and New Delhi has only itself to blame.

In early 2009, NTT Docomo invested 145 billion rupees ($2.2 billion) in an Indian wireless business on the understanding that if certain targets weren't met in five years, its partner, Mumbai-based Tata Group, would either find a buyer for the Japanese company's 26.5 percent stake at fair market value, or would take over those shares at half the original value of the investment, whichever was higher. When Docomo decided to exercise the option in April 2014, there was no taker for the unprofitable operations, so the Tatas sought central bank permission to pay out the equivalent of 72.5 billion rupees.

One Billion and Counting
Docomo-backed Tata Teleservices doesn't figure among the top five service providers by subscribers in India's fast-growing wireless market
Source: Telecom Regulatory Authority of India; Bloomberg

By then, however, the Reserve Bank of India had a new set of rules that banned any exit by a foreign equity investor at an assured price. Still, the central bank, under Governor Raghuram Rajan, wanted to allow the payment because it was a question of an Indian company honoring an agreement, struck at a time when there was no clear law against options embedded in such an investment. Also, this clearly wasn't a case of foreign-currency debt masquerading as equity. How many creditors agree in advance to a 50 percent haircut after five years? 

Yet the Indian government, which had the final say, decided the Tatas shouldn't be allowed to pay Docomo.

Too Crowded
Tata Docomo has a less than 6 percent share of India's 12-operator market
Source: Telecom Regulatory Authority of India
*Data for April 2016.

In January 2015, Docomo took the dispute to the London Court for International Arbitration. Last month, the court awarded the Japanese firm $1.17 billion (78.4 billion rupees at the current rate) in compensation from Tata Sons, the Indian conglomerate's holding company.

The saga should have ended there, except that:

  • Bloomberg News reports that New Delhi intends to block the arbitration payment, too;
  • Japan's Nikkei says Docomo might ask a U.S. court to seize Tata assets;
  • The Financial Times has learned from a person close to Docomo that the Japanese company might seek enforcement action on Tata Group's British businesses; and
  • The Tata Group is countering that the struggling Port Talbot steel plant in south Wales, as well as U.K.-based Jaguar Land Rover, are owned by Tata Steel and Tata Motors -- they're not Tata Sons' properties. 

So the whole thing has become a spectacle. The Indian government's refusal to take a commonsense view of Docomo's claim was a poor decision. New Delhi is now making bad judgment worse by threatening to block the arbitration award.

Such actions have consequences. Not only has the government's pigheadedness created unnecessary risks for minority shareholders of publicly traded Tata Steel and Tata Motors, it has also cast doubts on Prime Minister Narendra Modi's resolve to change investors' experience of doing business in India. The Docomo debacle is the depth of dumb. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Andy Mukherjee in Singapore at amukherjee@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net