Tensions between Norwegian telco Telenor and Unitech have reached a new peak after Telenor said it would transfer the operations of their joint venture Uninor to a new entity, effectively parting with its Indian partner.
Indian real estate conglomerate…
Tensions between Norwegian telco Telenor and Unitech have reached a new peak after Telenor said it would transfer the operations of their joint venture Uninor to a new entity, effectively parting with its Indian partner.
Indian real estate conglomerate Unitech quickly hit back, questioning the legality of Telenor’s move and adding it would take all legal rights to protect its investments.
Yesterday [Tuesday, 21 February], Telenor announced that the new entity “will serve as the platform to approach the upcoming auctions for fresh licenses as mandated by the Supreme Court. As a part of this process, the new entity will also seek requisite approvals from the FIPB [Foreign Investment Promotion Board] to allow Telenor Group to take up 74% ownership”.
Uninor is currently 67.25%-owned by Telenor while Unitech controls the remaining stake.
In early February, soon after the Supreme Court ordered the cancellation of 22 licences held by Uninor amid the 2G scandal, Telenor had already said it would start looking for a new partner in India and would seek indemnities from Unitech for the lost licences.
Yesterday, the Norwegian company added that it has issued to Unitech “a notice of voidance of the current shareholders’ agreement with Unitech on account of fraud and misrepresentation on their part as established by the Supreme Court.”
Unitech dismissed the accusations, saying it “cannot be held responsible for this in any manner.”
Regarding the transfer of Uninor to a new entity, the conglomerate added: “This not only shows complete disregard and oppression of the minority shareholder by Telenor, but is also against all principles of related party transactions.
“Telenor cannot transfer any assets of Uninor without the consent of Unitech because we have veto right in the shareholders’ agreement as well as in the articles of association for such matters.”
Ravishankar Raghavan, principal at Indian law firm Majmudar & Co, warned that foreign investment restrictions could result in a delay of Telenor’s plans. This, in turn, could interfere with the new 2G licences auction Telenor wants to participate in.
“Since the FDI policies do not allow Telenor to buy out Unitech’s stake completely, Telenor will have to look for an equity partner to buy out this stake from Unitech,” Raghavan said.
But a dispute with Unitech might also make it more difficult to find a new local partner. “The question is whether an Indian partner will risk partnering Telenor or seek an indemnity from Telenor against future circumstances.”
An out-of-court settlement may therefore be a solution to allow Telenor to buy out Unitech’s stake. But agreeing a settlement may be time consuming and might not give Telenor enough time to find a new partner before the 2G auction process is launched. “It is obvious therefore for Telenor to review their options before proceeding on any decision,” the independent lawyer concluded.
Relationships between Telenor and Unitech have been tense for about a year.
In early 2011, Uninor’s planned rights issue was brought to a halt after Unitech reportedly claimed that the transaction was not in the best interests of the shareholders. “While this process has been blocked by Unitech, Telenor has taken full responsibility for the financial security of Uninor by solely and fully guaranteeing for all short-term funding needs,” Telenor said in the 21 February statement.
Meanwhile, Unitech has reportedly accused Telenor of mismanaging Uninor.
