The Tata group's holding company, Tata Sons, is pledging shares of group companies, including the most valuable firm, Tata Consultancy Services (TCS), to buy out NTT Docomo in Tata Teleservices.
This fund-raising exercise is aside from a series of non-convertible debentures the Tata firm has issued.
Tata Sons needs Rs 7,200 crore (Rs 72 billion) to buy Docomo's 26.5 per cent stake in loss-making Tata Teleservices. The deadline set by the Japanese company to sell its shares expired on Monday.
According to statistics given to the stock exchanges, Tata Sons has so far pledged 31.9 million TCS shares worth Rs 7,700 crore (Rs 77 billion) By this, it has created an additional net pledge of TCS shares valued at Rs 1,340 crore (Rs 13.40 billion) in the past six months.
The holding company has also raised funds by pledging the shares of Tata Motors, Tata Steel and Tata Power, taking the total to Rs 2,872 crore (Rs 28.72 billion).
Tata Sons has simultaneously raised funds through issuing non-convertible debentures (NCDs) worth around Rs 2,600 crore since January this year, say bankers. The NCDs were raised at an average interest rate between 9.25 and 9.5 per cent.
The TCS and Tata Motors shares have been pledged to financial institutions as collateral against loans. Once the loans are repaid, the shares will be returned to the holding company.
"For a high-rated company like Tata Sons, the pledged shares should not be more than 30 per cent of the loan. In this case, it's not only the borrower; even the quality of pledged shares are very high," said a banker.
The fund-raising exercise by Tata Sons is one of the biggest in the recent times. The group is making investments across businesses - retail, real estate and aviation included. It is also investing in two brand-new airlines in joint venture with Singapore Airlines and Air Asia and has invested in the rights issue of Tata Power and Indian Hotels.
In January this year, Tata Sons invested an additional Rs 2,500 crore (Rs 25 billion) in Tata Teleservices which was used to repay loans of the wireless telephony company.
But the priority of the company at present is to raise funds to buy back the stake of Docomo, which is exiting India at a 50 per cent loss on its investment. In 2009, Docomo had paid $2.7 billion to enter the Indian market.
But Tata Teleservices' performance since has not been up to its expectations. On April 25, Docomo announced it was exiting India and blamed the spectrum mess for this.
An email sent to Docomo did not elicit any response, while a spokesperson for Tata Sons said the company raised funds from time to time "as part of its ongoing activities".
For 2012-13, Tata Sons reported a profit after tax of Rs 3,710 crore (Rs 37.10 billion) on a total revenue of Rs 5,750 crore (Rs 57.50 billion), against a profit of Rs 3,150 crore (Rs 31.50 billion) on total a revenue of Rs 4,730 crore (Rs 47.30 billion) in 2011-12. Besides, it had a cash and bank balance of about Rs 7,440 crore (Rs 74.40 billion) as on March 31, 2013.
The value of Tata Sons' 73.69 per cent stake in TCS stands at a staggering Rs 3,49,214 crore (Rs 3.49 trillion). This gives it a lot of flexibility in raising additional funds, if needed.