Telenor ASA has enlisted the help of the Norwegian government to protect its investment in India following the cancellation of 122 mobile-phone licenses by the nation’s top court.
Telenor said yesterday it will “fight to protect lawful investments” in India, adding that the Norwegian government is working on a solution after the Indian Supreme Court decided on Feb. 2 to cancel wireless licenses awarded in 2008 and gave the affected companies four months to shut down operations.
At stake is Telenor’s investment in its Indian unit and the fate of 36 million customers. The cancellations may prompt fresh calls for Chief Executive Officer Jon Fredrik Baksaas to quit India after the Scandinavian company announced yesterday that it will include a 4.2 billion kroner ($721 million) writedown in its fourth-quarter earnings on Feb. 8 related to the Indian licenses and goodwill.
The loss of permits may force Telenor to spend more to win them back, said Saeed Baradar, a telecommunications sales specialist at Societe Generale in London. “If Telenor commits to India and they decide to stay there long term, then there isn’t a bottom to where the stock will go,” he said.
Telenor shares fell as much as 2.2 percent to 91.65 kroner on news of the writedown in Oslo yesterday.
Russian billionaire Vladimir Evtushenkov’s Indian unit, whose licenses are also due for cancellation, was placed on watch by credit assessor Crisil Ltd. yesterday, which said 80 percent of the operator’s revenue will be affected. All but one of the company’s licenses were canceled in the court’s ruling.
Sistema Shyam Teleservices Ltd. will contest the court order, according to a statement yesterday. The carrier has 15 million customers, 3,500 employees and has invested more than $2.5 billion in India.
The Supreme Court ruling came 14 months after India’s chief auditor said the sale at “unbelievably low” prices may have cost the exchequer as much as $31 billion.
The court asked the Telecom Regulatory Authority of India to recommend the next course of action, which could include an auction for the permits.
The government will abide by the court’s verdict and prepare rules for auctioning the airwaves, Kapil Sibal, minister of communications and information technology, told reporters in New Delhi on Feb. 2. The ministry will “delink” the spectrum it provides to carriers from the permits, he said.
The Comptroller and Auditor General said in a report submitted on Nov. 16, 2010, that the cut-price, first-come, first-served sale four years ago to ineligible bidders was “arbitrary and lacked transparency.” Jailed former telecommunications minister Andimuthu Raja, bureaucrats and company officials are facing charges that they conspired to grant permits for personal benefit. All deny any wrongdoing.
The court canceled all permits held by Uninor, the venture between Telenor and Unitech Group, which owns India’s second-largest developer, and Etisalat DB Telecom Pvt., a partnership between Emirates Telecommunications Corp. and DB Group.
It also canceled most permits held by Videocon Telecommunications, Sistema Shyam and Loop Telecom Ltd.
The order may have broader repercussions as annual profit at Indian banks may fall as much as 10 percent from losses on loans to the affected phone companies, Fitch Ratings said yesterday.
State-owned banks such as State Bank of India and Punjab National Bank face “greater risk” from the license cancellations than private banks, Aashish Agarwal, an analyst at CLSA India Ltd., wrote in a report yesterday.