Billionaire Gets Tata's 40 Million Users in `Cash-Free' Deal

(Bloomberg) -- Bharti Airtel Ltd. surged the most since in five months after it announced that it had agreed to absorb Tata Group’s mobile-phone business in a“cash-free” transaction shaking up one of the world’s most crowded wireless markets.

The stock advanced 7.8 percent to 431.60 rupees, the most since May 10, after India’s largest mobile-phone operator said it will get Tata Teleservices Ltd.’s airwaves and 40 million customers in a “debt-free cash-free" merger.

Tata will settle past liabilities to pave the way for Bharti, led by billionaire Sunil Bharti Mittal, to complete what it described as effectively a merger, according to a statement issued on Thursday. Tata will finalize the structure of the deal with Bharti in the next five weeks, Tata Group Chief Financial Officer Saurabh Agrawal said in an interview Thursday.

“The consideration we’re getting is that instead of closing down the business, we are taking care of every stakeholder,” said Agrawal at Tata’s Mumbai headquarters. “Frankly, this business should have been restructured a long time back. We lost the industry position a while ago and we never recovered.”

Read more here about the tough choices Tata faced: sale, or shutdown

The world’s second-biggest mobile-phone market has long been ripe for an overhaul with almost a dozen carriers vying for customers with some of the lowest tariffs on the planet. Then Reliance Jio Infocomm Ltd., controlled by India’s richest man, roiled the industry by jumping into the fray last year with free calls for life and free data for a limited period.

Bharti said it will assume some small liabilities related to spectrum. Tata will retain its stake in Viom Networks Ltd., a tower company, and the group is exploring merging its enterprise business with Tata Communications Ltd., according to the statement. Parent Tata Sons will repay all the debt that Tata Teleservices has, Agrawal said.

Tata Teleservices was ranked ninth among India’s 11 carriers, with a market share of 3.55 percent as of July, according to the latest data from the nation’s telecom regulator. The top three carriers -- Bharti, Vodafone India Ltd. and Idea Cellular Ltd. -- control almost 60 percent of the market. Jio now has about 11 percent of the market, ranking it fourth.

Jio’s entry into the market sparked the latest shakeout. In March, Vodafone and Idea announced that they would merge operations in India to create the nation’s largest carrier. In February, Telenor ASA said that it would sell its India unit to current market leader Bharti. Reliance Communications Ltd. had planned to merge with Aircel Ltd. but that deal fell apart in early October.

The industry overhaul may be far from over.

“The telecom sector is undergoing a very turbulent and difficult phase,” billionaire Kumar Mangalam Birla, the patriarch of the group that controls Idea, said in an interview this week. “Probably the fittest three will survive.”

The promise of more than a billion customers led Indian companies to flood the wireless industry but as growth slowed, their debt-fueled expansion began catching up with them. As of March 31, Indian wireless operators had a combined debt of about 4.6 trillion rupees, largely because of aggressive bids for airwaves, according to credit assessor ICRA Ltd.

For Tata, its mobile-phone business has been a long-running headache. Until its resolution earlier this year, the unit was the subject of a years-long dispute between group holding company Tata Sons Ltd. and former Japanese partner NTT Docomo Inc. That feud contributed to founding family scion Ratan Tata ousting Cyrus Mistry as group chairman late last year.

“We’ll take the near term pain. To gulp down the poison. Finish it off and resolve it,” said Agrawal. “We are triple A. We act as triple A and we will always be triple A,” referring to Tata Sons’ credit rating.

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net.

To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Dave McCombs