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Tata Communications Sale of undersea cable assets unlikely

June 17, 2009

Tata Communications is looking for strategic investors for undersea cable assets, as reported by Moneycontrol.com. This is attributed to the limited options the company has available to raise incremental debt or issue further equity. TCOM had purchased Tyco Global in 2005 for cUSD130m which connects the continents of Asia, North America and Europe. The company so far has invested cUSD600m in its cable assets (HSBC estimates). As per our analysis, the replacement cost of its present undersea cable assets is estimated at cUSD1.3bn.

Undersea cable assets are integral to TCOM’s core business and the distressed purchase of Tyco allowed the company to benefit from significant commercial advantages and scale. Moreover, the company has ramped up managed services capabilities in the recent past, which allow it to leverage its investments in undersea cable assets and drive margin expansion. An undersea cable asset is similar to spectrum (and not tower assets) with mobile service providers (which is the raw material for the mobile business), hence we believe the possibility of sale of undersea cable assets is remote.

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