Why India Is Making Life Rougher for Global Deals: QuickTake Q&ABy , , and
A case being heard in London and New Delhi is testing Prime Minister Narendra Modi’s campaign to boost foreign investment in India. The dispute pits Japan’s biggest mobile phone company, NTT Docomo Inc., against Tata Sons Ltd., the holding company of India’s largest industrial conglomerate. The result may signal whether Modi’s initiative will affect shareholder rights in India. Foreign direct investment into India climbed 23 percent to $55 billion in the 12 months through March 2016, buoyed partly by Modi’s steps to ease curbs on inflows.
1. What’s the fight about?
How much money Docomo should receive for walking away from the 26.5 percent stake in Tata Teleservices, one of its worst overseas investments. Docomo spent 266.7 billion yen ($2.6 billion) for the stake in 2009, seeking to expand into one of the world’s fastest-growing major wireless markets.
2. What is Docomo seeking?
Docomo wants back half of what it spent to acquire its stake. The shareholders’ agreement gives it the right to relinquish its stake at "fair value," or at half the acquisition price, whichever is higher. Docomo decided to sell its stake in 2014.
3. So Tata Sons refused to pay?
Oddly, no. Tata Sons asked the Reserve Bank of India for permission to pay half the acquisition price, just as Docomo had requested. But the central bank responded citing a new rule that foreign investors could exit an investment only at prevailing “fair value,’’ as confirmed by a certified accountant or registered merchant banker, and not at a predetermined, "assured" exit price.
4. What is "fair value" in this case?
Neither Docomo nor Tata has said.
5. How are the companies trying to save their deal?
Docomo received a favorable ruling from the London Court of International Arbitration in June 2016, when it ordered Tata Sons to pay $1.17 billion for breach of contract. Docomo submitted that order to the Delhi High Court. It also approached London’s Commercial Court to seek enforcement of the award in the U.K., targeting assets it said are controlled by the group, like carmaker Jaguar Landrover and steelmaker Tata Steel. Tata Sons has said those assets are owned by separate legal entities. Meantime, the Indian holding company deposited $1.17 billion with the Delhi High Court, saying it’s willing to pay up if India’s central banks permits it to.
6. What does India’s central bank say?
In a letter dated July 25 and obtained by Bloomberg, the bank again refused to give permission for the Docomo payment saying such a transaction would violate Indian foreign exchange laws.
7. What’s next?
Legal maneuvering continues in the Delhi High Court and in London Commercial Court. Docomo says it is open to any discussion with Tata and the Indian government to enable payment of what it’s owed. Tata Sons says it will honor contractual obligations within Indian law.
The Reference Shelf
- A story on India allowing foreign investors to fully own its local airlines.
- A QuickTake explainer on India’s aspirations under Modi.
- Bloomberg View columnist Mihir Sharma says India’s door to foreign investors is only half-open.
- Tata’s timeline for the dispute so far.