Business Today

Breaking point

Sunny Sen        Print Edition: Nov 13, 2011

Sanjay Chandra had his back to the wall that day - literally speaking. Figuratively, he was on top of the world. Chairman of Unitech Wireless at that time, he had just announced the launch of Uninor, the mobile telephony brand born out of his alliance with Norway's Telenor. Television cameras and microphones, looking for the all-important byte, pushed Chandra until his back was grazing the walls of hotel Le Meridien's conference hall in New Delhi.

MUST READ: Unitech faces toughest test ahead

Chandra, as some reporters clutched at his arms for an exclusive quote, spoke highly of Telenor, a company few had heard of in India until then. He had good reason to. Telenor was paying Rs 6,135 crore for 67.25 per cent equity in Unitech Wireless, the telecom arm of real estate company Unitech, which had won licences and, more critically, spectrum to operate a pan-India network. It had paid Rs 1,658 crore for the licences.

That was two years ago. As this piece is being written, Chandra not only has his back to the wall, this time figuratively, but is also behind bars. His people have dragged Telenor to the Company Law Board, or CLB, a quasi-judicial body which deals with corporate disputes, alleging mismanagement of the joint venture's operations.

Tug of war continues...

Unitech

  • In March: Moved the court objecting to a rights issue
  • In October: Dragged Telenor to CLB for malafide, selfserving intentions
  • Alleges that Telenor did not take loan of Rs 9,000 crore when it was available
  • Accuses Telenor of drafting a business plan that reduces the value of Uninor
Telenor
  • Says Unitech's allegations are baseless and aimed at blocking the rights issue
  • Claims that Uninor completely stands on Telenor's money and guaranteed loans
  • Due to uncertainties in the telecom sector, banks aren't lending to new operators
  • Claims that business plans made to suit Uninor's interest

That adds to the litigation already before the Punjab and Haryana High Court, where Unitech has objected to Telenor's move to float a rights issue of equity to raise Rs 8,200 crore. If the issue were to go through, Unitech, not exactly in the pink of financial health, may not be able to subscribe to its portion and its hold on the company will become more tenuous.

A Unitech spokesperson, who does not want to be named, says Telenor has valued the joint venture at a paltry Rs 400 crore, which puts the value of Unitech's 32.75 per cent stake at Rs 131 crore. Given that Telenor's deal to buy 67.25 per cent in the company in 2009 valued it at Rs 9,100 crore, this is a staggering fall.

What is more, if Unitech does not participate in the rights issue and the issue goes through at face value taking the total equity to Rs 8,600 crore, Unitech's stake will fall to about 1.5 per cent. "According to us, the company's value is Rs 10,000 crore," says the spokesperson.

The trigger for the petition before the CLB is a 10-year plan approved by the Unitech Wireless board in its meeting in Amsterdam on June 6 this year. The plan projects an immediate need for equity infusion and thus makes the case for the rights issue. Unitech calls the plan "oppressive", "mala fide" and "an example of mismanagement". Its executives also like to point out that Telenor is having problems with Canal+, a division of film company Vivendi and Telenor's partner in Denmark, Sweden, Norway and Finland.

Telenor's relationship with its partners in Russia and Bangladesh, they say, are not very cordial either. Glenn Mandelid, Telenor's spokesperson, chooses to underline the company's criticality to the Indian joint venture. "The simple fact is that Uninor stands today almost entirely on Telenor Group's money and Telenor-guaranteed loans," he says in response to emailed questions. Unitech's decision to move the CLB, according to Telenor, is little more than an attempt to block the rights issue.

Unitech executives say the rights issue would have been unnecessary had Unitech Wireless not declined a Rs 9,000-crore loan offer from State Bank of India. Telenor says no such loan was available. "Had Uninor been able to secure any such loans, there wouldn't be any reason for the owners to contemplate a rights issue."

Ownership battles in joint ventures no longer raise eyebrows in India's corporate sector. As the country opened up to foreign investment in the 1990s, a clutch of joint ventures was formed as Indian companies looked for expertise and capital and foreign ones looked to navigate through the local regulations and business climate.

Many of them broke up, but after thriving for a few years. Unitech Wireless, on the other hand, is unravelling prematurely as the Indian partners have fallen on bad times and are also facing charges relating to the so-called 2G scam. In fact, after Chandra was charged, Telenor said he should resign as Unitech Wireless' Chairman. He did, after initial reluctance, in April this year, giving greater control over the joint venture to Telenor.

Uninor has the largest number of subscribers among new operators

Tata DOCOMO has more GSM subscribers than Uninor, but COAI has not listed DOCOMO

Figures in million
Source: Cellular Operators Association of India (COAI)

"Ownership battles are not new, but for a young company this is unfortunate," says Kunal Bajaj, Director at telecom consultancy firm Analysys Mason. The unfortunate result of the fight between the partners is obvious: Unitech Wireless' business is suffering and its investment plans are stalled. Discuss the scenario with lawyers and they have a story to tell. For any joint venture to work well, a lot of trust between the partners is needed. When that trust is missing, the CLB generally suggests that the company be valued by a third party and that either partner buy out the other, explains C.S. Vaidyanathan, senior Supreme Court lawyer. Unitech Wireless has already engaged BNP Paribas to value it.

Telenor has a different view of Uninor's performance, a view close to being rosy. "It is by far the most successful new operator and has even overtaken some of the established operators in many circles," says Mandelid. This contention is backed by Uninor's monthly reporting of subscriber numbers, which stood at 1.92 million in September, taking the total to 29.6 million. Videocon, which started services at the same time as Uninor, added 113,000 subscribers in September and now has 6.27 million.

However, many consider the average revenue per user, or ARPU, to be a truer indicator of a company's operating fortunes. There Uninor comes a cropper with an ARPU of Rs 42 to Rs 45. The industry average is 100 and market leader Airtel boasts Rs 190. "Uninor is in a logjam," says Hemant Joshi, Partner, Deloitte Haskins & Sells, a consulting firm. "They don't have anything to offer that the incumbents can't."

Some point to the New Telecom Policy, under discussion now, as providing a possible solution as it seeks to make it easier to acquire a telecom company. As the fight for spectrum becomes more intense, those who have it and are not using it in the most profitable way, will look like attractive propositions.



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