The Reserve Bank of India has allowed conglomerate Tata Sons to buy Japanese telecom firm NTT DoCoMo Inc 's stake in their struggling Indian venture, paving the way for the completion of the long-delayed $1.1 billion deal.
In a memo to the finance ministry dated December 22 seen by Reuters, the Reserve Bank of India (RBI) said it was "inclined to accept" the proposal from Tata to buy DoCoMo's stake of around 26 per cent in Tata Teleservices Ltd at half the price DoCoMo originally paid for the investment. The RBI has requested for the finance ministry's view.
The RBI approval, also confirmed by a source directly involved in the process, is part of the government's bid to simplify and scrap some of the more obscure rules that have curbed foreign investment.
A rule change brought in last year prevented foreign investors from selling stakes in Indian firms at a pre-determined price.
"The larger issue here is of a fair commitment in the contracts in relation to an investment and a downside protection of an investment, rather than assured return," the central bank said in the memo.
"Besides, our strategic relationship with Japan in recent times in relation to FDI (foreign direct investment) flows is also a matter to be kept in view," it said.
DoCoMo said in July last year that it would sell its stake in Tata Teleservices. The seventh-biggest mobile phone carrier in India has been losing money in a hugely crowded market for years.
Under the original deal signed in 2009, when DoCoMo invested $2.2 billion in the mobile carrier, in the event of an exit it would get the higher of either half the original investment or a fair value.
Tata Sons told the central bank in November that it had been unable to find a buyer for the DoCoMo stake, and sought the regulator's approval to purchase the stake itself at 58.045 rupees per share - half the price DoCoMo had paid in 2009.
Pricewaterhouse & Co LLP, engaged by Tata Sons, had determined the fair value of the shares at 23.34 rupees a share.
A senior policymaker directly involved in the approval process said the central bank would keep reviewing rules that make it hard for foreign firms to recover their investments, and hold back outside investors.
"We cannot be stuck with one policy forever," he said.