Another battle between Norway?s Telenor and India?s Unitech is brewing. Sources said that the Norwegian operator, which has a controlling 67.25% stake in Unitech Wireless, the joint venture between the two in which the balance 32.75% is held by Unitech, is planning to create a new company with a new Indian joint venture partner and will participate in the forthcoming auctions through the newly created company.
Telenor has hit upon this idea because it believes its ongoing dispute with Unitech may drag on and not get resolved by the time the auctions are held. Accordingly, it has prepared a Plan B of creating a new company with a new Indian partner and transfer all its assets to the new company. It may even look for a new brand name in place of the current Uninor.
The relationship between Telenor and Unitech touched a new low when on February 15 the former slapped a notice seeking indemnities from Unitech in the wake of the Supreme Court order cancelling the 22 licences Uninor held to operate mobile services in the country. Telenor held Unitech liable for the breach of warranties related to the cancellation of the licenses ? seeking compensation for all investment, guarantees and damages caused by the Supreme Court order.
Unitech was quick to reject any such demands from Telenor, saying that the court’s judgment questioned the government’s policy in allotting the licences and has in no way suggested a breach of warranties by Unitech as claimed by its estranged partner.
When contacted a Telenor spokesperson said, “As we have stated in the press release, we believe that our partnership with Unitech has no future and so we will start the process of looking for a new Indian partner. Anything beyond this is pure conjecture that we are unable to respond to. We would also state that Unitech’s response to our indemnity claim notice is not surprising. This is only a desperate attempt to distract attention from their own guaranteed obligations. While Telenor Group does not agree with Unitech’s views on the issue, Unitech is free to pursue any remedies they believe are available to them in the shareholders’ agreement. The core issue is this. The 22 licences that were revoked by the SC were obtained by Unitech. The legality and validity of these licences on which Telenor Group invested Rs 14,000 crore were guaranteed by Unitech. These licences have now been revoked by the court. We are simply taking the prescribed legal action to secure our lawful investments.?
Unitech has a 30-day period during which it has to officially respond to Telenor?s notice.
If the two sides are not able to resolve their dispute within the next few months, it would be difficult for Uninor to participate in the auctions, the modalities of which are being worked upon by the Telecom Regulatory Authority of India. Apart from this the two sides are also fighting before the Company Law Board over a rights issue on which Telenor is keen but to which Unitech is opposed. An arbitration is also on between the two sides in Singapore on the issue.
Finding a new Indian partner may be difficult for Telenor at this stage due to the controversies surrounding the company and the sector. However, valuation would not be a problem because it has recently valued the company at a mere Rs 400 crore. By this the value, the 32.75% stake held by Unitech will work out to only Rs 131 crore. If Telenor wants to have a 74% stake ? the maximum a foreign player can hold ? in the newly created company, then the Indian partner would have to fork out even less.
However, sources close to Unitech said that there may be other problems for Telenor in creating a new company. Unitech sources said that Telenor has a non-compete agreement with it under which it cannot without its consent get into a similar business with another Indian partner in India. Second, it says that unless the present company Unitech Wireless is annulled, any new company cannot get into telecom under the cross-holding norms. The cross-holding norms bar a company having operations in a circle to have more than 10% in another company offering the same services in a circle.
Unitech sources said that if the company wants to get a new Indian partner it would have to offer it an exit premium. Unitech’s valuation of the company is around Rs 11,000-12,000 crore.
However, Telenor sources reject such problems. It said that it has proceeded with the notice after studying all options.
Telenor had picked up its 67.25% stake in October 2008 for Rs 6,120 crore and has invested another Rs 8,000 crore in the company. It had licences for all 22 circles but has started operations in only 13 of them, and has around 36 million subscribers.