Neotel in Tata's Hands as South Africa’s State Sells Stake

Mergers, Acquisitions and Financial Results

Telecoms operator Neotel is now officially majority-owned by an Indian company with the government finally sealing a deal to sell its 30% stake in the business to Bombay-listed Tata Communications. The shares were previously jointly held by state-owned enterprises Eskom and Transnet, and the move means Tata now owns 56% of Neotel. The value of the deal has not been disclosed -- Tata published a press release on the Bombay Stock Exchange last week but did not mention any financial figures.

Tata first bought into Neotel in 2001 when the operator was being set up. It took the 26% stake earmarked for a foreign operator with the cash and the experience to build the business and to pull together the other diverse and largely incompatible shareholders.

Plans for the government to pull out and allow Tata to increase its stake were first announced last June. "This reaffirms Tata Communications' commitment to its expansion and investment plans in the emerging regions of Asia, Africa and the Middle East. We will support Neotel's efforts to provide global quality telecom services in SA," said its CEO, Srinath Narasimhan.

Neotel CEO Ajay Pandey said the move would strengthen its position as a stable player in the local market, and let Neotel capitalise more fully on Tata's global best practices and vast international network.

Shedding the government as a shareholder should speed up Neotel's decision making and hone its operations by streamlining its ownership. The sale has already been beneficial, since a fresh cash injection of R3.1bn from all its shareholders in December saw Tata supply 56% of the money, in anticipation of owning 56% of the business. Neotel expects to invest a total of R11bn in infrastructure, and presumably the government's reluctance to contribute its share of that was one of the reasons for striking its exit deal.

Business Day