Axiata's Ncell sale already mired in controversy

Axiata has agreed to sell Reynolds Holding, the company that owns its 80% stake in Ncell, for just $50 million – far, far less than the $1.37 billion it agreed to pay to Swedish telco group Telia for the shares in 2015.

Stranger still is the buyer, Spectrlite, which was registered in the UK in September. A search on Companies House reveals one of the directors is Nepali businessman Satish Lal Acharya, who lives in Singapore. His wife – Bhavana Singh Shrestha – just happens to own Sunivera Capital Ventures, which controls the other 20% of Ncell.

An investigation in 2021 by the Centre of Investigative Journalism-Nepal (CIJ-Nepal) uncovered a treasure-trove of questionable dealings surrounding Sunivera's purchase of the shares in 2016. It was suggested that Axiata might have paid Sunivera $90 million via an off-shore company just months before the deal was announced, implying that Axiata had found a way to circumvent Nepal's foreign investment restrictions.

As part of its report, the CIJ-N calculated the value of the stake at approximately $300 million at the time, which suggests the outstanding 80% was worth $1.2 billion.

If that estimate is at all accurate, how is it possible that the value of the remaining 80% could have dwindled to a mere $50 million just two years later? As Telecoms.com has already pointed out, Ncell turned over 9.32 billion Nepali rupees (NPR) in Q3 alone, which equates to nearly $70 million. How can a company that generates that much revenue in three months – and serves 16.6 million customers – only be worth $62.5 million in total?

In a press release, Axiata explained that its motivation to sell was in part due to what it claims are unfair tax conditions in Nepal. It notes that between 2016 and 2020, it paid a total of NPR47 billion ($421.9 million) in capital gains tax on the Telia deal, and received assurances that no further taxes were due. However, in January 2021, the government demanded another NPR57.9 billion for the same transaction.

Axiata successfully petitioned an international tribunal to prevent the Nepali government from collecting the fee, but it has still yet to withdraw its demand.

In addition, Axiata said that the expiration of Ncell's licence in 2029 has created further uncertainty; that there exists an unfavourable foreign investment protection environment in Nepal; and that it is also concerned about the potential for the government to arbitrarily seize its stake.

"Axiata has been in Nepal for seven years, working alongside hard-working colleagues in Ncell," said Axiata CEO Vivek Sood, in a statement. "However, the increasing challenges in the operating environment represents a fundamental shift. It has led the Axiata board to conclude, after a thorough process, that our foray in Nepal cannot continue due to the unfavourable conditions for Axiata, the uncertain regulatory and tax environment and the looming risks associated with the expiry of the mobile licence in 2029."

Under the terms of the deal, Spectrlite will pay $5 million of the $50 million within six months, and will pay the remainder in two years. Axiata is also eligible to receive a share of future dividends – depending on Ncell's performance – until 2029.

This is all well and good, but there is a potential spanner in the works in the form of the Nepal Telecom Authority (NTA).

According to a Nepali Telecom report, the NTA has written to Ncell to explain that shareholders require permission from the NTA before buying, selling or transferring ownership, and that Axiata has not sought approval.

If the report is accurate, Axiata's dream of a quick and clean exit from Nepal might turn into a bureaucratic nightmare.