Date January 20, 2015
RBI permits Tata Group to pay NTT DOCOMO price above fair market value

NTT DOCOMO had a 26% stake in Tata Teleservices, a joint venture with the Tata Group. According to the initial agreement, NTT DOCOMO was entitled to receive the higher of half the amount it invested in the joint venture or the market price of the shares.

Prior to a notification issued on 15 July 2014 by the Reserve Bank of India (“RBI”), the pricing guidelines for exit from foreign direct investment with optionality clauses for unlisted companies mandated that the non-resident investor would be eligible to exit from the investment in equity shares of the investee company at a price not exceeding the price arrived at on the basis of ‘return on equity as per the latest audited balance sheet.

However, on 15 July 2014, RBI had revised the pricing guidelines for issue and transfer of shares and mandated that, in case of unlisted companies, a non-resident investor can exit at a price not exceeding the price arrived at as per any internationally accepted pricing methodology on an arm’s length basis.

In a recent development, RBI has allowed the Tata Group to buy out the stake from NTT DOCOMO in Tata Teleservices at a predetermined price which is greater than the ‘fair value’ price as required under the pricing guidelines subject to the final comments and approval from the Department of Economic Affairs, Ministry of Finance.