Ownership transfer to prevent Ncell from going under govt control

Masta KC 04 Dec 2023
Ownership transfer to prevent Ncell from going under govt control

KATHMANDU:  GSM operator Ncell has grabbed media headlines after its owner, Malaysian company Axiata, announced the sale of all its 80% stake to a newly registered British company, Spectrelight Limited.

As per a statement issued by Ncell, Axiata divested all its shares to Spectrelight for $50 million (approximately Rs 6.66 billion). Axiata acquired these stakes in 2016 from the Swedish firm TeliaSonera for Rs 1.36 billion (approximately Rs 143 billion).

The sale of shares seven years later at about 5% of the last transacted value has sparked suspicions. Adding to the intrigue, Axiata is set to receive dividend payouts from Ncell until 2029. However, it remains unclear under whose ownership Ncell will operate until 2029. The Nepal Telecommunications Authority (NTA), the telecommunications sector regulator, has not provided any insights into this share purchase deal. NTA Director Arjun Ghimire told Himal Press that it is difficult to make any comment at this stage as only the ownership has been transferred, and liabilities have not yet been transferred.

Himal Press has learned that Axiata and Spectrelight already have a dividend-sharing formula in place. According to the agreement, Axiata is set to receive 80% of the dividends in 2023, with Spectrelight getting the remaining 20%. Similarly, Axiata’s share of dividends will decrease over the coming years, with 40% in 2024 and 2025, 30% in 2026 and 2027, and 20% in 2028 and 2029.

Spectrelight is under the ownership of Satishlal Acharya, a Singapore-based businessman of Nepali origin. His wife, Bhavana Singh, holds the remaining 20% of shares in Ncell through her company Sunivera Capital Ventures. With this recent ownership transfer deal, the Acharya family now owns the entirety of Ncell.

In the statement issued by Ncell, Acharya said: “Spectrlite is pleased to announce an agreement for the acquisition of a controlling shareholding in Ncell. I will be drawing upon my extensive experience in the telecommunications industry and shall be working with the management of Ncell to drive innovations, investments, and a wide range of life-enhancing services to the Nepali people.”

Likewise, Ncell CEO & Managing Director Jabbo Kayumov said Ncell is pleased with the upcoming change in ownership. “Ncell eagerly anticipates collaborating with new shareholders to elevate Ncell into a world-class Nepali-driven data and communications hub,” he said in the statement. “In the foreseeable future, Ncell will unveil its refined plans that underscore the substantial prospects for expanding Ncell’s service offerings. This evolution aims to maintain Ncell’s position as the leading national digital services and internet access platform.”

According to the Nepal Telecommunication Act, 1996, companies granted permission to operate telecommunication services have a license period of 25 years. The law states that entities with over 50% foreign investment will come under government control after the expiry of their license. With Ncell, established in 2004, bound to come under the government’s ownership in six years, the recent share transfer agreement appears to be a strategic move to circumvent this outcome.

The Act stipulates that the government control provision can be avoided if the shareholding of Nepalis exceeds 50%. To prevent Ncell from going under government ownership, Axiata had initially planned to increase Nepali ownership in Ncell by issuing primary shares. However, a recent amendment by the Securities Board of Nepal (Sebon), which restricted companies with a license period of less than 10 years from going public, disrupted this plan. This unexpected development thwarted Ncell’s plan to go public and shift its focus toward finding a buyer.

Ncell’s license is set to expire in 2029.

The government had awarded a license to operate GSM service to Spice Nepal through bidding in 2004. The company launched its services under the brand name of ‘Mero Mobile’ in 2005. Swedish firm TeliaSonera purchased 80% of shares in Spice Nepal and renamed the company Ncell in 2008. TeliaSonera then sold all its 80% of shares in Ncell to Malaysian firm Axiata in 2016.

Regulator in the dark

The ownership transfer deal transpired at such a rapid pace that government agencies are clueless about the deal. Following Ncell’s announcement of Axiata’s intention to divest all its stakes, the Nepal Telecommunications Authority (NTA) had sought clarification from Ncell.

According to the Nepal Telecommunications Regulations, telecommunication operators must obtain pre-approval from the regulator for the transfer of ownership of shares exceeding 5% of the company’s paid-up capital.

“We sought clarification from Ncell after Axiata’s statement on its intent to sell shares. But it has come to our knowledge that the ownership transfer deal was finalized on the same day without obtaining our approval,” said Sundar Pyakurel, an undersecretary at NTA. “We will now take necessary action against Ncell as per the existing law.”

PAC concerned

Following Ncell’s announcement of the complete sale of its shares by Axiata to Spectrelight, the Public Accounts Committee (PAC) has raised apprehensions about the share purchase agreement. The PAC has decided to initiate a comprehensive study on the ownership transfer process, transaction valuation, and potential tax implications throughout the procedure.

Writing a letter to the Nepal Telecommunications Authority (NTA), the Inland Revenue Department, and the Office of the Company Registrar, the PAC has sought clarification on whether Nepali law was adhered to in the ownership transfer, whether Nepal is entitled to any tax on the transaction, and the potential implications of the deal for the country. The committee is particularly concerned whether the deal would prevent Ncell from coming under government control after six years.

Member of the House of Representatives, Sumana Shrestha, has also voiced concerns regarding the Ncell ownership transfer agreement. She has questioned whether Axiata will face penalties for exiting Ncell without obtaining regulatory approval. Shrestha perceives the decision to sell Ncell for less than 96% of the previous transaction value as a strategy to evade taxes.

Declining revenue

The increasing access to Internet services has impacted the profitability of telecommunications companies globally. Ncell’s revenue trend reflects this shift.

Ncell mobilized Rs 59.69 billion in revenue in 2017/18 but saw a subsequent decline to Rs 55.28 billion in 2018/19, further dropping to Rs 46.76 billion in 2019/20, Rs 40.22 billion in 2020/21, and Rs 39.50 billion in 2021/22. In the previous fiscal year, the company’s revenue fell to Rs 37.44 billion.

Published On: 04 Dec 2023


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