With mounting debt, there's no easy fix for Uninor
Funding has dried up for the sector, which makes refinancing Uninor's debts difficult. The 2G scandal, and the fact that telecom margins have been savaged due to intense competition, don't help
Mumbai: Telenor is in a sticky spot over its Indian telecom joint venture. The Norwegian group wants to raise $1.8 billion in new equity for Uninor, which it owns alongside India's Unitech. Unitech has resisted the issue at every stage, even appealing unsuccessfully to the Supreme Court. In what appears to be a last throw of the dice, it petitioned the company law board last week. But even if Unitech wins its legal battle, the firm will still need to pay down its unsustainable debts, which makes the court case an unwelcome distraction.
The venture has had problems. In 2009, Telenor invested $1.2 billion for a majority stake alongside India's number two property firm. Both Uninor and Unitech's managing director were later charged in the 2G spectrum scandal.
Today the business is saddled with $1 billion in debt. According to the Uninor board, its equity stands at just $81 million. That means that the potential $1.8 billion in new equity would dwarf the existing equity, and if Unitech doesn't participate, its stake would fall to less than 2 percent. Unitech has disputed Telenor's valuation in its petition to the law board.
Meanwhile the venture is under pressure. Funding has dried up for the sector, which makes refinancing Uninor's debts difficult. The 2G scandal, and the fact that telecom margins have been savaged due to intense competition, don't help. Uninor is relying on short-term funding which Telenor itself is guaranteeing. While Telenor says the only viable option is to raise equity, Unitech counters that local funding is still available, albeit probably on a short-term basis.
India's new telecom policy insists that firms maintain a national, not just regional, network. But it's hard to see how Uninor can do that without new equity capital. Unitech has debt of its own, so it may find it hard to inject more money. But even if it wins the legal battle, it's not clear that Uninor's problems will be solved in the longer term without its current owners recapitalising the business, or selling to others who can. That makes the current spat look like an unwelcome distraction.
- Telenor's Indian joint-venture partner Unitech has filed a petition before the Company Law Board, alleging mismanagement of their telecom venture by the Norwegian firm and its key executives.
- The partners have been at loggerheads over a planned $1.8 billion equity raising for the joint venture, which trades under the Uninor brand name. Telenor owns 67.25 percent of the joint venture and Unitech owns the remainder.
- An attempt to block the capital raising through a legal process was rejected by the Supreme Court in July this year.
- In drawing up the capital raising plans, the Norwegian company valued Uninor at Rs 28 per share, pegging Uninor's value, excluding debt, at $81 million, according to the Economic Times. Telenor had bought its stake in Uninor in 2009 in a deal that valued the company at $1.9 billion.
- The joint venture and Unitech's managing director, Sanjay Chandra, are among the three companies and 14 people charged by Indian police in the 2G telecoms licensing scandal. All accused have denied any wrongdoing.
-Telenor had said that the events described in the police charges predate its investments in India.
While it comes as no surprise that foreign investors are shocked by the Supreme Court's decision to cancel 122 licenses, the judgement might give pause to existing and future foreign investments unless policy becomes clearer.
The fallout of the Supreme Court's decision to scrap 122 2G licenses issued in 2008 is gradually becoming obvious.
Unitech, a property company, is also seeking an injunction against Telenor's plans to transfer the joint venture's business to a new company