Wednesday, January 22, 2014

Telecos may have to go public

Kathmandu, Jan 22

Telecom companies in Nepal may have to go public in the future. A taskforce formed to study cross-holdings in the telecom sector has recommended creating a legal provision requiring private telecom companies to become public companies within five years after the cross-holding guideline is issued.

As of now, only state-owned Nepal Telecom (NT) is a public limited company and the rest—seven telecom companies including two satellite phone service providers—are private limited companies. Cross-holding is a situation when a company or person has investments in more than one licensee company in the same service area.


In an interesting recommendation, the taskforce has suggested that telecom companies having an annual turnover of over Rs 50 million should be converted into public limited companies within a year of the issuance of the cross-holding guideline.

According to the Nepal Telecommunications Authority (NTA), five telecom companies—Ncell, UTL, Nepal Satellite Telecom, Smart Telecom, STM Telecom Sanchar (now CG Communications)—all have annual turnovers of more than Rs 50 million each.

“In order to make telecom service providers more accountable, we’ve suggested turning them into public limited companies,” said Bhaskarmani Gnawali, coordinator of the taskforce.

In order to attain this objective, the taskforce has also recommended amending the Company Act and Telecommunications Act to force the currently operating private limited telecom companies to go public.

The taskforce has recommended to the government to implement rules preventing a single person or company from holding more than 51 percent of the stock in local telecom companies.  

Although the report has not said if the 51 percent limit is for domestic investors only, it has suggested allowing a single foreign investor to hold an 80 percent stake in the sector. “Since telecommunications services are a concern of mass interest, share ownership of more than 51 percent by a single person or group should not be allowed,” said the study report.

All the telecom companies except UTL have investments exceeding 51 percent by a single company.

In a bid to collect feedback from stakeholders, the report has been presented for discussion by the NTA. As per the report, if cross-holding is to be allowed, a telecom company having investments of more than 51 percent could hold investments of up to 15 percent in another telecom company. It has recommended to the government to adopt a provision making it necessary for cross-holding companies to go for a merger.

The study report, prepared by a committee under the coordination of Bhaskar Mani Gyawali, executive director of Nepal Rastra Bank, has underlined the need to introduce a guideline to regulate cross-holding. Other members of the panel were a chartered accountant and the NTA’s deputy director Kailash Prasad Neupane.

As per the report of the task force, the government should amend acts including the Foreign Investment and Technology Transfer Act and Industrial Enterprise Act to convert private companies into public companies and regulate the cross-holding issue in the telecom sector.

Ananda Raj Khanal, acting chief of the NTA, said that they would collect feedback on the report within a month and submit the study to the NTA board for approval. “A new rule regarding crossholding will be introduced as a bylaw or a guideline based on this study,” he added. Presently, there are no

rules preventing practices like cross-holding and mergers in the telecom sector.

The issue of cross-holding had arisen after TeliaSonera, the parent company of Ncell, acquired a majority stake in Nepal Satellite Telecom through its subsidiary TeliaSonera Asia Holding BV in 2012. However, the Swedish-Finnish telecom company sold its shares in the company in September last year by selling back its indirect ownership to Zhodar Investment based in the British Virgin Islands citing “regulatory reasons” in Nepal.

Source: The Kathmandu Post

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