Tata Tele to now write off Rs1,648 crore

Tata Teleservices Ltd (TTSL), which has written off Rs5,141.28 crore, will write off Rs1,648 crore more as it goes ahead with the third leg of its capital restructuring programme which comes in the wake of a November announcement by NTT DoCoMo Inc. that it was paying $2.7 billion (Rs13,070 crore) for a 26% stake in the company.

A recent petition to the Delhi high court related to its restructuring plan that it will use gains of Rs1,648.74 crore from revaluing its equity investment in listed subsidiary Tata Teleservices (Maharashtra) Ltd, or TTML, to write off more book losses and unabsorbed depreciation. TTSL isn’t listed on the exchanges.The company has till 15 March 2009 to complete this restructuring. All such schemes have to be approved by high courts, according to India’s Companies Act.

TTSL has explained that its investment in 714.3 million TTML shares, which was valued at Rs387.05 crore or about Rs18 per share, was in September revalued at Rs28.5 per share, based on six-month average market prices on the National Stock Exchange (NSE).

Following the revaluation, this investment has grown to Rs2,035.80 crore, an appreciation of 426%. Its not ascertain when TTSL made this investment in TTML, which was earlier known as Hughes Ispat Ltd.

According to TTSL’s petition, it has received an approval for the restructuring scheme from 19 of the 33 equity shareholders accounting for 99.75% of the company’s shareholding. TTSL’s earlier plan had envisaged halving its equity capital to Rs3,173.57 crore and using Rs1,967.71 crore from its share premium account to write off past losses and unabsorbed depreciation.

TTSL’s losses increased from Rs8,547.49 crore as on 30 September 2007 to Rs9,177.17 crore as on 31 March. As on 30 September, TTSL held a 37.65% stake in TTML with associates such as Tata Sons Ltd, the group’s main holding company, holding the remainder of the combined 66% stake held by promoters, according to data on BSE’s website.

TTSL, which services 30.2 million subscribers through a network based on wireless technology standard CDMA, said in a recent presentation that its subscriber base was growing at a compounded annual growth rate of 80%. The company’s subscriber base represents 9.2% of the 325.7 million mobile users in India.

The company explained in its petition that the move to cancel part of its share capital, which was already lost on account of accumulated losses, was to have a balance sheet that “depicts a more realistic capital employed which is fairly represented by the value of productive assets on the balance sheet.”

THE 3 STEPS PROCESS FOR THE SCHEME OF RESTRUCTURING.

Losses as on: 30 Sep 2007 - Rs8,547.49 cr.

Losses as on: 31 Mar 2008 - Rs9,177.17 cr.

STEP 1: Amount available from extinguishment of share capital:- Rs3,173.56 crore.

To write off book losses of Rs1,586.78 crore. ...and unabsorbed depreciation of Rs1,586.78 crore.

Balance Nil.

STEP 2: Available in the share premium account:- Rs1,967.71 crore.

To write off book losses of - Rs983.85 crore. ...and unabsorbed depreciation of - Rs983.85 crore.

Balance Nil.

STEP 3: Original value of investment: Rs387.05 cr.

Value of the investment after proposed revaluation:- Rs2,035.80 cr.

Difference between the original value and the revaluation:- Rs1,648.74 cr.

To write off book losses of - Rs1,307.21 cr. ...and unabsorbed depreciation of - Rs341.53 cr.

Balance Nil.