Singapore Technologies Telemedia is set to acquire 74% stake in Tata Communications' data centres business that is primarily located in India and Singapore for Rs 3,330 crore ($497 million), said multiple sources aware of the transaction.
Tata Group will retain a minority stake in the company, sources added. STT is an investment unit of Temasek Holdings. Mails sent to a Tata Communications did not get a response till the time of going to press, while STT's spokesperson finally responded, declining to comment.
The sale proposal was presented to the board of the Tata Communications on Wednesday and is likely to get cleared, following which a formal announcement is likely in the next few days, the sources said.
Tata Communications in a clarification to the stock exchanges earlier on Wednesday had said: "An update on the strategic options being explored by the company is to be presented to the board of directors for their meeting scheduled to be held later today for their consideration."
In an effort to deleverage its balance sheet by over a billion dollars, Tata Communications had mandated investment bank Jefferies LLC last year to sell the cash guzzling business, which also has a long payback period as part of a portfolio realignment.
Standard Chartered Bank advised STT in the transaction. Data centre operations of the Tatas are spread across 44 locations in India and abroad including the US, the UK and Singapore, covering more than 1 million square feet of space, offering managed hosting and storage services.
In India, it has facilities in Delhi, Mumbai, Bengaluru, Chennai, Kolkata, Pune and elsewhere. For the first nine months of 2015-16, managed services, including data centre operations, contributed 31%, or Rs 2,407 crore, of data services revenues, according to an investor presentation of the company in April.
Data Centres alone contributed Rs 650 crore revenues in the same period. However, one of the sources mentioned above said that Tatas will monetise only the India and Singapore operations, which constitutes the lion's share of the business, and may still retain parts of the remaining global footprint.
Moreover, the divestment will only involve the specialised data centres' infrastructure in these locations. It is likely to hold on to the services piece. ET on November 2 had first mentioned that Tatas' data centres business is being sold to STT.
"We think the underlying uptrend in the data business and potential upsides are not fully in the price and the share price correction provides opportunity despite other segments facing concerns. We note there could be upsides from support from potential asset monetisation such as a Neotel sale, sale of surplus land and value unlocking from data centre," said Rajiv Sharma, analyst at HSBC in his March 2016 report on Tata Communications.
The buy will help STT expand its operations in a growing economy like India. The company has been striving to team up with two other Internet data centre service providers to create the world's largest carrier-neutral Internet data centre and business exchange service company.
Its broad range of IBX and co-location services is offered to top networks, tier 1 carriers, enterprises and content providers. India is one of the fastest growing markets for cloud services in the world, estimated to grow from $423 million in 2013 to $1.3 billion in 2017, according to research firm Gartner.
Last year, Japan's NTT opened its largest data centre in the country -its ninth so far - spread across 3 lakh sq ft in Mumbai. Microsoft too opened three data centres ahead of schedule in India, while global players like Amazon are also expected to expand its services soon.
Amazon was among the potential suitors for the Tata asset which had also drawn interests from Google and private equity players like Advent, Carlyle Group, Blackstone and Bain Capital. Singapore's Temasek and the Tata Group have a long standing relationship. The investment company of the Singapore government has been one of the earliest backers of Tata Group companies including Tata Teleservices.
Tatas have also leveraged Singapore the most among all its peers in India Inc having initiated the group's globalisation odyssey there, way back in 1970 when Singapore was known more for being a shipping village. Today the group operations - with 15 group companies, employing over 3300 employees and managing over $7.5 billion are sprawling.