Datacom’s future is looking dark with internal disputes over its management still continuing, after two years of its establishment. Mahendra Nahata, who owns a 36% stake in Datacom Solutions, has denied a story that appeared in ET that he is selling his stake and exiting the company, the Wall Street Journal reported.

The Economic Times story claimed Nahata would sell his stake in Datacom to the founders of Videocon Industries Ltd. for Rs 12 -13 billion ($234.8 million). Also Nahata’s HFCL Infotel operations in Punjab would be merged with Datacom and its Rs 400 crore debt transferred on to the books of Datacom. Nahata’s 36% stake sell would allow the Dhoots, who owns the remaining 64% stake, to bring in a strategic partner and much needed cash.

Investor Interest

Over the past year, many foreign investors have shown interest but perhaps the public standoff between the two promoters may have scared them away. Investors who have been reported to be in communication with Datacom include:

— Qatar Tele
— Dubai-based Etisalat 
— Bahrain Telecommunications Company (Batelco)
— Kuwait’s Zain
— Turkish telecom major Turkcell
— Mexican tycoon Carlos Slim‘s America Movil, and
— France Telecom

This may be the undoing of the operator if investors lose confidence and top rung managers exit in frustration over its neglected growth. Meanwhile its start up contemporary Unitech has received Rs 30.5 billion in the first phase of funding from Telenor. Datacom has spectrum and is ready to roll out in 22 circles but does the operator have the finances to weather the downturn alone? Remember that existing operators have struggled with expensive rollouts in states like Chhatisgarh, Jammu & Kashmir, among others.

The Datacom Timeline*:

November, 2007: Jumbo Techno Solutions held 90% stake in Datacom & 10% with Oswal Fertilizers and Chemicals Ltd, which exited when Videocon bought 64% stake.

June 2008: Legal battles begin. Nahata alleged that the Dhoots were reneging on the commitment made in the investment agreement and was dissatisfied with their running of the firm. Caveat filed against Nahata’s Jumbo Techno Services by Videocon. The operator still hoped to roll out services on August 15.

August 2008: Stake selling talks fail – Dhoot was ready to offer Nahata Rs 1,360 crore, but Nahata has asked for Rs 2,116 crore. Roll out plans get delayed.

August 2008: Nahata alleges that the Videocon group has violated banking and company law norms by passing off a Rs 1,000-crore loan from SBI as its own contribution to Datacom’s equity. Roll out postponed to December 2008.

Oct 2008: Launch postponed to May 2009, CEO Ravi Sharma resigns. Raj Kumar Dhoot takes over, Nahata rebels against the posting.

*- based on news reports

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