Endgame nears in custody battle for Uninor assets

Unitech says board-approved auction meant to favour Telenor will settle valuation, says Telenor

The bitter battle between real estate major Unitech and Norwegian telco Telenor has reached a decisive stage, with Unitech having decided to approach the Company Law Board (CLB) against a decision by the Unitech Wireless board to auction its business to the highest bidder at a base price of Rs 4,000 crore. Norwegian telco Telenor has 67 per cent stake in Unitech Wireless and Unitech the rest.

Unitech says the decision to auction is “illegal” as its three board nominees had opposed the move in a meeting on July 31. It had also invoked its “veto rights” enshrined in the shareholders’ agreement between the two partners, under which a partner could reject any resolution critical to the future of the company. The telco whose licences were cancelled in 13 circles by a Supreme Court order can continue to run its operations only till September 7.

Telenor has already declared it is willing to participate in the bidding for Uninor’s business and has publicly stated earlier it would participate in the 2G spectrum auction through a new company with a different Indian partner.

• FEB 2008: Unitech Wireless issued pan-India licence to operate mobile services in 22 circles 
• MAR 2009: JV formed, Telenor infuses fresh equity of Rs 6,100 crore 
• JAN 2011: Uninor announces rights issue of Rs 8,200 cr, Unitech rejects the issue 
• MAY 2011: Unitech invokes arbitration 
• SEP 2011: Telenor values company at Rs 400 cr, Unitech values it at Rs 11,000-12,000 cr 
• AUG 2011: High court allows rights issue to proceed subject to arbitration 
• FEB 2012: Licence cancelled 
• JULY 2012: Unitech opposes rights issue 
• JULY 2012: Board decides to auction Uninor business 
• AUGUST 2012: Unitech opposes auction, to move CLB

Attacking the move to auction the business, Unitech said in a statement: “The proposed auction of Uninor (the brand through which Unitech Wireless operates) assets is nothing but a circuitous way for Telenor to transfer these assets to another one of its own entities. Instead of a direct transfer an auction is being proposed to provide it a garb of legitimacy, knowing full well that no new telco will value the assets before acquiring spectrum.” The real estate giant also questioned the fairness of the auction process, saying the fact that the only party to have expressed interest already was under the direct control of the same management of Telenor showed it was not a free and fair process.

In a statement, Uninor said, “The auction method will ensure that no one can doubt the transparency of the process and claim that assets were transferred at an artificially presumed valuation or that only Telenor Group was given a selective or preferential invitation to procure them.”

Telenor and Unitech have been involved in a bitter battle for many months. The real estate company wrote to the Foreign Investment Promotion Board (FIPB) last week, opposing a Uninor application to raise Rs 1,200 crore through a rights issue it said was a matter under arbitration. The FIPB deferred the proposal at its last meeting.

In a public notice, Unitech Wireless has said it has fixed a deadline of August 6 for interested parties to bid for the business. The deal includes customers and all other movable and immovable assets. The highest bidder will also have to take over Rs 9,000 crore of debt and Rs 1,000 crore of bank guarantees on its books.

Justifying its decision, Telenor in a statement pointed out, “The court-mandated cancellation of licences will destroy any value in the Uninor business. We do not see why any shareholder should want this value destruction to happen when it is possible to conduct an open and transparent auction of Uninor’s business while Uninor is still a going concern. An open auction will also remove any dispute around the real valuation of the Uninor business.”

The company’s valuation also has been a major bone of contention between the two partners. While earlier Telenor had contended the enterprise value of the entity was Rs 400 crore, Unitech had contested that and said it was worth Rs 12,000 crore. However, the new valuation of the business undertaken by Deloitte and KPMG is Rs 4,190 crore.

Challenging the invocation of the veto rights by its estranged partner, Telenor added in its statement, “Unitech’s veto rights, we believe, are automatically forfeited once it is established that the shareholders’ agreement and all rights enshrined in it were based on fraud. We are willing to establish this in court, should the need arise.”