Tata group has begun discussions to sell an additional stake in Tata Sky, its direct-to-home (DTH) television arm, to joint venture partner Twenty-First Century Fox Inc., said two people aware of the development.

The media and entertainment company controlled by billionaire Rupert Murdoch owns a close to 30% stake in Tata Sky through its investment arm Network Digital Distribution Services FZ Llc (NDDS) and is keen to increase it, the people cited above said on condition of anonymity.

“Fox is looking to consolidate its position and control in several markets and has made repeated attempts to take over BSkyB, a television and broadband services provider in the UK," one of the two said.

India is already the largest DTH market in the world by number of subscribers, this person said. India has 94.61 million DTH subscribers and Tata Sky had a 21.52% market share as of December 2015, according to Telecom Regulatory Authority of India data.

The Economic Times reported earlier this month that the Tata group and Bharti Enterprises had held exploratory talks to evaluate a mega alliance involving their telecom, overseas cable and enterprise services, and direct-to-home TV businesses. The inclusion of Tata Sky is just to sweeten the deal for Airtel, which has its own DTH unit, Mint reported on 12 July.

Significantly, while government regulations allow 100% foreign direct investment in DTH, there continues to be a 20% cap on foreign investments in media cross-holdings, which could be a potential deal breaker as News Corp., another Murdoch company, owns the Star TV network in India.

But the people cited above said a precedent exists for such a deal, given that NDDS already has a stake of around 30% in Tata Sky, and the two sides will approach the government for approval if the ongoing discussions are successful.

An email sent to Fox remained unanswered as of press time. A Tata Sons spokesperson said: “We do not comment on speculation."

Tata Sky started operations in 2004 as an 80:20 joint venture between Tata Sons and NDDS. In 2008, Singapore’s Temasek Holdings Pte. Ltd acquired 10% of Tata Sky. In 2010, NDDS was indirectly allowed to increase its stake in Tata Sky by 10% although foreign investment in the sector was capped at 20% at that time.

NDDS, according to news reports at the time, approached the Foreign Investment Promotion Board for approval to invest Rs324 crore to take a 49% equity exposure to the Tatas’ investment arm, TS Investments, which in turn acquired a 20% stake in Tata Sky.

It owned 29.8% of the company’s equity capital and Tata Sons owned 51.69% as of September 2016.

In fiscal 2016, Tata Sky reported a net profit of Rs80 crore on operating income of Rs4,472 crore, significantly lower than the Rs267 crore it made on an operating income of Rs3,723 crore in fiscal 2015, company filings show.

“DTH is a cash-intensive business and the industry is very dynamic and that’s possibly one reason why Tatas may want to reduce their stake or exit altogether,"said the second person cited above.

Since inception, Tata Sky has received regular funding from its parent Tata Sons to support its capital expenditure, on average Rs1,600 crore per year, from FY14 till last year. While the capex is likely to decline FY17 onwards, Tata Sons will have to keep funding the company should it choose to remain invested, said a recent Crisil Ltd report on the company.

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