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.

Tata Tele sets off losses of Rs5,141 crore,....Biggest write-off by an Indian firm; two-step capital restructuring to help company achieve profitabili

Tata Teleservices Ltd, or TTSL, the country’s sixth largest phone services firm, has started restructuring its capital by writing off Rs5,141 crore in losses and unabsorbed depreciation, according to excerpts from proceedings of shareholders meeting, in what is the largest such set-off by any Indian firm.

The restructuring, which was approved at an extraordinary general meeting of shareholders on 8 September and is pending approval from the Delhi high court, will potentially help the company achieve profitability faster.

This is the second occasion in the telecom sector’s recent history that such a large write-off is being executed; the first being in 2005 when Reliance Industries Ltd’s then subsidiary Reliance Infocomm Ltd, now called Reliance Communications Ltd, or RCom, wrote off Rs4,500 crore as part of a split between the Ambani brothers. RCom is now run by younger brother Anil Ambani’s Reliance-ADA Group.

According to the TTMLs profit-and-loss statement for fiscal 2008, the Tata phone firm had losses of Rs9,177.17 crore, including carried forward loss of Rs7,363.41 crore. Most of the losses were on account of increased capital expenditure for capacity building as the company expanded its subscriber base to nearly 30 million, as of end-August data from industry lobby Association of Unified Telecom Service Providers of India.

As its network expands and it gains customers in India, the world’s fastest growing phone services market by customers, TTSL has reduced annual losses to Rs1,813.76 crore for the period ended 31 March 2008, against Rs2,062.52 crore in the previous year. Revenue also increased to Rs5,377.90 crore for fiscal 2008, a rise of 15.70% over Rs4,647.80 crore in the year to 31 March 2007.

The restruc-turing plan includes reducing Rs1,967.71 crore from its share premium reserves on the balance sheet by writing off Rs983.85 crore of book losses (through wiping out share premium) and Rs983.85 crore of unabsorbed depreciation.

In a simultaneous move, TTSL plans to halve its equity share capital from Rs6,347.15 crore to Rs3,173.57 crore, by reducing Rs1,586.78 crore from its book losses and Rs1,586.78 crore against unabsorbed depreciation.

The capital restructuring will enable the Tata Sons Ltd subsidiary to hasten dividend plans and perhaps make it more attractive for a foreign strategic telecom partner to pick up stake. TTSL is an unlisted entity.

Writing off losses enhances TTSL’s dividend paying capacity, one expert said, but its benefit will have to weighed against the minimum or alternative tax benefits the company enjoys as a result of the losses. “One has also to see whether the dividend capacity is really useful at a time when further investments are called for,” said Vivek Gupta, partner at BMR Associates, an audit firm.

This move “right-sizes the balance sheet”, said Girish Vanvari, executive director at KPMG, a management consultancy and accounting firm. Share capital, reserves and surplus add up to a large net worth and bloat the balance sheet. Also, he added, “companies cannot declare dividends till they wipe out accumulated losses”.