India Said Planning to Block Tata Sons Payment to NTT Docomo

(Bloomberg) -- India plans to block Tata Sons Ltd.’s payment of a $1.17 billion arbitration award to NTT Docomo Inc., which is seeking compensation for its stake in the Indian conglomerate’s wireless business, people familiar with the matter said.

The finance ministry won’t grant an exemption to the Indian foreign exchange act that Tata Sons would need to pay the money to its Japanese partner, according to the people. The Indian government is wary of setting a precedent, as at least 10 other companies have sought waivers for similar deals, one of the people said, asking not to be identified as the information is private.

NTT Docomo is seeking compensation for its stake in Tata Teleservices Ltd. as it tries to exit one of its worst overseas investments. The London Court of International Arbitration ordered last month that Tata Sons, the holding company for India’s largest conglomerate, pay $1.17 billion to the Japanese wireless carrier for breaching an agreement over the wireless venture.

Docomo shares declined as much as 2.8 percent to 2,700.5 yen Friday before trading at 2,750 yen as of 1:09 p.m. in Tokyo. The stock has gained about 10 percent this year.

The Japanese company’s agreement with Tata Sons gives it the right to request a buyer for its stake at a fair market price or 50 percent of its acquisition cost, whichever is higher. That formula yields a greater price than what’s allowed by current Indian regulations, which state foreign companies can only exit investments at a valuation based on the return on equity.

Pursuing Payment

Tata Sons has sounded out the finance ministry on its willingness to grant an exemption, though it hasn’t yet made a formal application, one of the people said. Tata Sons may face penalties from the Indian government if it makes the payment without such approval, the people said.

NTT Docomo got an ex parte order from the Commercial Court in London seeking permission to enforce the award in the U.K., Tata Sons said Thursday in an e-mailed response to Bloomberg queries. The court has granted the Indian company 23 days starting July 27 to apply for the order to be set aside, the company said.

“Clearly, fulfillment of the arbitral award requires conformance to Indian regulations and law, and Tata Sons is committed to full compliance with all such requirements,” Tata Sons said in the statement.

NTT Docomo filed a plea in the Delhi High Court seeking enforcement of the arbitration ruling, Bloomberg Quint reported July 26, citing court proceedings. The court will next hear the case on Aug. 30, according to the report. Tata said it would deposit the entire amount of the award with the Court by Friday, as a gesture of good faith.

Various Measures

If the Indian government blocks the transfer, NTT Docomo plans to take all available steps to recover the money from Tata Sons wherever the Indian company does business, one person said. D.S. Malik, a spokesman for the finance ministry, didn’t respond to two calls to his mobile phone seeking comment.

“We don’t think Tata Sons has shown its truthful willingness to make the payment,” NTT Docomo spokesman Yousuke Oowada said in Tokyo Friday. Previously, he said that NTT Docomo would take “various measures” to pursue the arbitration payment. The Reserve Bank of India rejected on July 25 an application for the transfer of the funds, a decision that NTT Docomo thinks is “unfair,” he said. 

A representative for the Reserve Bank of India didn’t immediately respond to e-mailed questions.

--With assistance from Grace Huang and Sandrine Rastello To contact the reporters on this story: Vrishti Beniwal in New Delhi at vbeniwal1@bloomberg.net, Siddharth Philip in Mumbai at sphilip3@bloomberg.net, George Smith Alexander in Mumbai at galexander11@bloomberg.net. To contact the editors responsible for this story: Ben Scent at bscent@bloomberg.net, Young-Sam Cho at ycho2@bloomberg.net, Daniel Ten Kate at dtenkate@bloomberg.net, Timothy Sifert, Dave McCombs

Late Thursday evening Tata Sons released a media statement clarifying that Docomo had obtained an order from the Commercial Court in London for permission to enforce the arbitral award in the UK.

Tata Sons said ‘because the order was obtained exparte Tata’s arguments have not yet been heard. We would like to clarify that the London Commercial court has granted Tata Sons a period of 23 days, starting July 27th, 2016, to apply to set aside the exparte order. The arbitral award cannot be enforced until the end of that period, or until any application made by Tata Sons has been finally decided upon. Further, the UK assets of Tata Steel and Jaguar Land Rover are not owned by Tata Sons. These are subsidiaries of Indian public listed companies of which Tata Sons is a promoter with a minority shareholding of not more than 30% to 35%.  These companies are not party to the arbitration proceedings, and no award has been issued against them.  It follows that the award cannot be enforced against those companies.’

Tata Sons said it was issuing the statement in response to certain media reports suggesting that Tata Group assets in the UK might be seized as an outcome of the arbitration decision.