Mumbai: Norway’s Telenor ASA, the majority shareholder in the troubled domestic telecom joint venture, Uninor, has begun looking for a new partner that it intends to bring on board before a fresh auctioning of radio spectrum.
Telenor will choose a minority partner that will let it be in the driver’s seat with a 74% stake, as it seeks to sever ties with its existing Indian partner Unitech Ltd and focus on its long-term plans in the world’s second-largest telecom market.
Need of the hour: Sigve Brekke, head of Asia region for Telenor Group, says the firm intends to bring the new partner on board before the government opens up the auction process for spectrum. Photo by Daniel J. Groshong/Bloomberg.
Telenor had joined hands with real estate company Unitech in 2009 to set up Uninor with an investment of Rs 6,100 crore for a 67.25% stake.
“We don’t see a future with Unitech and because of that we will now start seeking a new partner... We have started the process. We intend to take in a 26% partner so the intent for Telenor is to go up to 74%,” Sigve Brekke, head of Asia operations for Telenor Group, said at a media interaction.
“We’re definitely seeking a partner who will accept that Telenor is in full control of the operation, so with those two parameters, we’ve started the search,” said Brekke, who also serves as the managing director of Uninor.
The joint venture partners have shared an uneasy relationship, especially after the second-generation telecom spectrum scam broke in October 2010. They have been feuding over a proposed rights issue of Rs 8,000 crore for long-term funding, which was passed in a board meeting.
Unitech has contended that the proposed rights issue was “being forced by Telenor on Uninor, wrongly and illegally, at a time when the company does not require it.”
Unitech declined to comment on Telenor’s plan to seek a new partner for Uninor.
Meanwhile, to meet Uninor’s capital needs, Telenor has guaranteed overseas borrowings of around Rs 8,000 crore, taking up its exposure in Uninor to Rs 14,100 crore. It has also served an indemnity notice on Unitech after a Supreme Court ruling earlier this month to revoke 122 licences issued by the telecom ministry in 2008, including that of Uninor’s.
Telenor, which operates in 13 other markets around the world, wrote off $721 million in licences and goodwill in India after its 22 mobile licences were among those quashed by the Supreme Court. It is 54% owned by the Norwegian government.
Telenor has also applied to the Foreign Investment Promotion Board to be allowed to raise its stake in Uninor to 74% limit allowed for overseas holdings in telecom.
Another parameter the potential partner should meet is no experience in the telecom industry and an ability to invest in the venture for owning a 26% stake.
“Unitech have their rights also (in the joint venture) so we need to find a solution for it. We cannot force in the new partner without finding a solution with Unitech, so that’s a process that has to go in parallel,” Brekke said, adding that the new structure has to be in place before the government opens up the auction process for spectrum.
He, however, refused to comment on a possible non-compete clause with Unitech citing confidentiality. He also refused to answer a question on whether Telenor was willing to buy out Unitech from the venture.
On bidding for spectrum, Brekke said that three conditions will have to be met to participate in the auction—clarity on the auction rules, having a new partner in place, and clarity on the regulatory policy.
“I’m encouraged by what (telecom minister Kapil) Sibal did this week when he came out with clarity on some issues, on M&A rules, on spectrum caps, on all future spectrum being auctioned and on spectrum sharing,” he said.
He said that he had got an assurance from the government that it will align the cancellation of licences with the fresh auctioning of spectrum. The Supreme Court, when it cancelled 122 licences, also set the Department of Telecommunications a four-month deadline to auction spectrum and licences.
Brekke also said that Uninor, which had 36.31 million subscribers, or 4.06% of the 893.84 million subscribers market, was on track to break even at the earnings before interest, taxes, debt and amortization level by 2013 before being hit by the cancellation of licences.
“For us to break even, we have to get to the level of the telecom incumbents on the cost-per-minute parameter. We are higher but the trendline (suggests that we’re) getting there,” he said.
Uninor operates in 13 circles (covering 75% of industry revenue and subscribers) and cornered 22.4% of the 9.47 million subscribers added by the industry in December—the second highest after Idea Cellular Ltd. Part of its entry strategy was to become cash flow positive by 2015 and achieve 8% market share by 2018.
john.k@livemint.com