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Telenor faces fierce resistance from watchdog and erstwhile partner

3 Aug 2012

Norwegian telco Telenor has encountered resistance against recent attempts to remove itself from its association with Unitech, its joint venture partner in Indian cellco Uninor. Seeking to prop up the company’s finances and dilute the influence of Unitech, Uninor requested permission to conduct a rights issue late last month. The Foreign Investment Protection Board (FIPB) deferred making a decision on the matter but sector watchdog the Department of Telecommunications (DoT) has weighed-in, demanding that Uninor furnish The rights issue price and the number of shares subscribed by its Indian and overseas investors, amidst concerns that Uninor would exceed the 74% foreign ownership cap. Further, the DoT insisted that any proposed new investor first receive security clearance.

Facing difficulty on the rights issue front, Uninor announced earlier this week that it was going to go under the hammer, seeing an open auction of the business and its assets as the only way to ensure the preservation of its value. An open auction would also determine the true value of the telco, ending an earlier dispute between its parent companies Telenor and Unitech. Unitech was ordered by the Company Law Board (CLB) to either buy out its Norwegian counterpart, or sell its stake to Telenor. Opting to sell out, Unitech and Telenor then disagreed over the value of the company, and could not settle on a price tag. The matter is due to go before a Singapore court for arbitration. Regarding the auction of Uninor, Telenor said it would bid for the business, offering to pay INR41.9 billion (USD749.4 million) if no other bidder expresses interest before 6 August.

Unitech has moved against the decision, prompting the CLB to stay the auction and restrain any sale or transfer of Uninor’s business or assets. Unitech described the proposed auction of Uninor as ‘a circuitous way for Telenor to transfer these assets to another one of its own entities. Instead of a direct transfer, an auction is being proposed to provide a garb of legitimacy, knowing fully well that no new telco will value the assets before acquiring spectrum.’ Referring to a comment in a statement from Telenor that claimed that Unitech’s veto rights were forfeited as its shareholders’ agreement was ‘based on fraud’, the latter added: ‘Unitech nominees had vetoed the move to auction assets in the board meeting of Uninor. Courts in India have already held that the Articles of Uninor cannot be disregarded. Whether the shareholder agreement can be unilaterally rescinded by Telenor is also a subject matter of arbitration between the shareholders and any decision by Telenor otherwise is prejudicing and circumventing this entire process.’

India, Department of Telecommunications (DoT), Telenor Group, Telenor India

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