New Delhi: Another day, another letter from Cyrus Mistry explaining his actions when he was the Chairman of Tata Sons. Mistry was removed as Chairman on 24 October, and since then he has been responding to so-called allegations from the Tatas, with respect to several momentous decisions taken under his four-year stint.
This time, it is about the Tata group’s bleeding telecom business, one where Japanese partner NTT DoCoMo finally upped the ante and began demanding its pound of flesh. And then dragged the Tatas to arbitration court in the UK and the US. The dispute involves $1.17 billion as potential payout by the Tatas, and dragging the group through a long and messy arbitration proceeding in the US when a similar case in the UK was decided in the Japanese partner’s favour.
But one thing is not clear: Which specific allegation from his former employers is Mistry responding to while trying to clear his name in the NTT DoCoMo episode? Though reams of newsprint have been used in writing about the Mistry ouster saga and the possible reasons which lead to his sacking, there is no specific allegation from the Tata Group as yet about the NTT DoCoMo case.
Hints and suggestions abound, but no one has really said a thing about Mistry’s handling of the DoCoMo issue in black and white. To respond to perceived allegations in such detail only goes to show that Mistry is not going down without a fight. Or two. And that the entire saga of his sacking and alleged wrong decisions could well end up in courts, instead of there being any across-the-table discussion between Ratan Tata and Mistry.
When asked for a response to Mistry’s missive on the DoCoMo issue, a Tata Group spokesperson merely said “Insinuations are being imagined. We will not comment as the matter is sub judice”. One thing and one thing only lead to things deteriorating to such an extent in the telecom tale: massive losses in the telecom business, which preceded Mistry’s arrival and continued into his tenure.
According to this story accumulated losses of Tata Teleservices were at Rs 31,500 crore and the company’s net worth was eroded completely in 2015-16. Its losses in FY16 was Rs 3,386 crore against Rs 3,846 crore loss in the previous year. Revenue for the period was down to Rs 10,708 crore in FY16 from Rs 10,965 crore reported the previous year. The company had debt of about Rs 30,300 crore as on March this year.
Is it any wonder then that NTT DoCoMo wanted to call it quits? And wanted money in accordance with the agreement the two parties had signed at the time of entering a joint venture in 2009, where the Japanese company was mandated to get a fair value or half its stake acquisition price, whichever is higher? The government did not quite the see the matter in the same light though and the RBI refused permission for the Tatas to give DoCoMo the sum they sought as per the JV pact.
In his explanatory letter today, Mistry says some important things:
1) Rejects ‘insinuations’ that the Docomo issue was handled in a manner inconsistent with Tata culture and values.
2) Talks of “a number of” discussions on the Docomo situation in the Tata Sons board and wanted Tatas to honour all commitments within the law. And also helpfully reminds the readers that the agreement with Docomo had been executed before Mistry became executive chairman of the Tata Group.
3) Says Tatas requested Docomo to join them in seeking the approval of the RBI but Docomo did not agree. And the Tatas went ahead and applied to the RBI for approval. “Since RBI approval was not forthcoming, Docomo initiated arbitration. The award was passed in favour of Docomo and against the Tatas. Tatas under Mistry did not challenge the award in the UK. On the contrary, RBI was approached once again by the Tatas for permission to pay the amount awarded. RBI again refused permission.”
4) Docomo sought enforcement of the award in the Delhi High Court. In order to show their bonafides, Tatas deposited a sum in excess of Rs 8,000 crore in court.
5) Throughout the above process, Ratan Tata and N.A. Soonawala, Trustee, were kept informed and they participated in separate meetings held with Mistry. They also participated in the meeting with the legal counsel (who also happened to be a trustee of the Dorabji Tata trust) and who represented Tatas in the litigation. At all times Ratan Tata and Soonawala concurred and approved the course of action adopted by Tatas and as advised by legal counsel.
6) “In light of the above facts, to suggest that Mistry acted on his own or contrary to Tata values or without the knowledge and/or concurrence of Ratan Tata and Soonawala is as false as it is mischievous.”
According to this piece in Mint, in January 2014, the Reserve Bank of India (RBI) came out with new norms that specified that foreign companies can only exit investments at a valuation based on the return on equity. While neither Tata nor DoCoMo has specified what the sale price would be when RBI norms are applied, it is likely to be much lower than what DoCoMo had paid in 2009.
According to a Bloomberg story, the CEO of NTT DoCoMo even now wants to keep a dialogue on with the Tatas. “To solve this problem, we need the Indian government’s action,” said Kazuhiro Yoshizawa, Docomo chief executive officer, following a briefing held to discuss first-half earnings. “It’s important that we keep talking with Tata to reach some sort of basic agreement.”
Some media reports have suggested that right after sacking Mistry from chairmanship of Tata Sons, the Tatas have initiated a fresh dialogue with the Japanese to sort out the telecom mess. Perhaps this would be the best course of action.