The Tata Sons Limited has received an in-principle approval from the Reserve Bank of India (RBI) for its proposal to buyback stake of Japan-based NTT DOCOMO in Tata Teleservices Limited (TTSL) at the price agreed to by the two parties under the stake acquisition agreement signed in 2008-09. According to RBI, though the transaction is not in line with the central bank’s 2014 order, it has accepted Tata Sons’ proposal in order to maintain India’s strategic relationship with Japan.

The case relates to the decision of DOCOMO to sell its stake in TTSL by exercising a put option, which was part of the stake acquisition agreement. As per the terms of the agreement, TTSL is required to buy back DOCOMO’s stake at 50 per cent of the transaction value or the prevailing market price, whichever is greater. Signed in 2009, the contract was in line with the then RBI guidelines that stated that a put option, when exercised, should be based on the prevailing return on equity when the option is exercised, and not on a pre-determined valuation.

However, according to an order passed in June 2014, RBI agreed to link options to market rates rather than return on equity. Consequently, Tata Sons sought RBI’s permission to purchase the shares at the higher valuation to honour the commitments under the agreement.

Tata Sons had engaged PricewaterhouseCoopers to determine the fair value of TTSL’s equity shares. According to the report submitted by PwC, the fair value for the shares held by DOCOMO is Rs 23.34 per share. However, under the shareholders’ agreement, the value was pegged at Rs 58.05 a share.

The proposal will now be sent to the Ministry of Finance for the final approval, following Tata Sons would be permitted to buy back the stake from DOCOMO.