Tata Communications has approached the government, which holds 26.12 per cent stake in the company, to relax the shareholder agreement to enable it to raise fresh resources through equity and debt, or through divestment of its holding in Tata Teleservices [Get Quote].

TCL wants to raise around Rs 1,000 crore (Rs 10 billion) through a rights issue, sources familiar with the developments said. This means the government will have to invest Rs 260 crore (Rs 2.6 billion) to retain its stake in the company, in case it approves the issue.

The company needs to raise fresh equity for any fresh borrowing, as it has already reached the maximum limit of debt vis-a-vis its net worth, as stipulated under the shareholder agreement. As on March 31, 2008, the total debt on the company's book was Rs 3,042 crore (Rs 30.42 billion).

"Tata Communications is considering various options to raise financing to support its growth and investment plans. No decision has been taken about the exact timing or the financing instrument," said a company spokesperson.

He further added that equity is one of the options under consideration. The dilution of any existing shareholder's holding is dependent on a variety of factors, and it is inappropriate at this stage to speculate on the outcome of a hypothetical rights issue.

In a bid to mobilises resources, Tata Communications has also decided to divest 36.6 million shares of Tata Teleservices at Rs 117.81 per share to NTT-DoCoMo for Rs 430 crore (Rs 4.3 billion). NTT has entered into a definitive agreement with Tata Teleservices to acquire 26 per cent stake through a fresh issue of 844 million shares and secondary sale by existing promoters such as Tata Communications, Tata Power [Get Quote], Tata Industries and Tata Steel [Get Quote].

As part of the strategic investment, the company had invested Rs 1,011.32 crore (approximately Rs 10.11 billion) in Tata Teleservices to pick up 15.01 per cent stake.  At this rate, the value of the residual stake of around 10.42 per cent in Tata Teleservices would be Rs 5,182 crore (Rs 51.82 billion).

Tata Communications is considering participating in the secondary sale.