The Nepal government has officially made public the investigation committee report on Ncell Axiata share sales, which reveals that the transactions occurred without taking mandatory legal approvals from domestic regulatory authorities.
The government has released the report prepared by the study and investigation committee on Ncell Axiata share purchase and sale. The Cabinet meeting decided to implement the suggestions in the report, after which the Ministry of Information and Communication made it public. The committee was formed under the coordination of former Auditor General Tankamani Sharma Dangal.
Fourteen Ownership Changes Since Establishment
According to the report, Ncell has changed its share ownership 14 times since it was established as Spice Cell Private Limited in the year 2058. Most of these transactions happened outside Nepal through offshore structures. The report states that complete records of these transactions were not submitted to the official bodies in Nepal. The committee also concluded that payments for some Nepalese shareholders were done abroad, bypassing the banking system of Nepal.
The ratio of foreign and domestic investment in Ncell has changed multiple times. Currently, Ncell has about 80 percent foreign and 20 percent domestic investment. The committee noted that Ncell was converted into a public limited company by selling 11 shares to seven more employees on Saun 19, 2077. This whole process did not looked natural to the committee.
Huge Profits and Dividends Taken Abroad
Since starting its business in Nepal, Ncell brought a total of Rs 8 crore foreign investment including technology, while domestic investment was Rs 2 crore. During this period, the company have earned a massive profit of Rs 1 kharba 13 arba 58 crore and declared dividends worth Rs 93 arba 50 crore. Out of the declared dividend, more than Rs 66 arba 95 crore and an extra Rs 2 arba under other headings were sent abroad. Local shareholders received Rs 19 arba 25 crore as their share of dividends.
Ncell has distributed more than 1 crore 30 lakh SIM cards in Nepal to run its mobile services. It has paid around Rs 3 kharba 2 arba in tax and non-tax revenues to the Nepal government. The committee pointed out that Ncell’s operating profit is very high compared to telecom operators in other countries.
The report highlights that Axiata was making very attractive profits in Nepal. The profit percentage after tax in Nepal was much higher compared to Axiata’s operations in Indonesia, Bangladesh, and Sri Lanka. Therefore, the committee concluded that Axiata’s statement on December 1, 2023, which claimed that the business environment in Nepal was not favorable, was not based on real facts.
Unapproved Share Purchase Agreement and Unnatural Terms
The investigation committee concluded that the share purchase agreement signed between Axiata Group Berhad Malaysia and Spectrlite UK on December 1, 2023, was done without taking necessary prior approval as required by Nepalese laws. The agreement says the initial payment is 5 crore USD, which is around Rs 6 arba. The first installment is 50 lakh USD, and the remaining 4 crore 50 lakh USD is to be paid within four years.
Additionally, under a deferred consideration, the buyer has to pay 80 percent of the 2023 dividend, 40 percent of the 2024 and 2025 dividends, 30 percent of the 2026 and 2027 dividends, and 20 percent of the 2028 and 2029 dividends. Because the buyer also has to bear other potential liabilities, the committee said it is very hard to know the actual transaction value.
The committee believes that the agreement does not follow normal commercial principles. The seller seems to dominate the deal, putting many unnatural conditions on the buyer. Even after selling the shares, the seller can take dividends for years, file lawsuits, and stay free from company debts. Because of these points, this cannot be considered a normal and free commercial agreement.
Cross-Holding with Smart Telecom and Regulatory Concerns
The committee also raised concerns about potential economic interests and cross-holding between Ncell and Smart Telecom. An annex in the agreement states that if Smart Telecom’s license is renewed and Ncell acquires it, the buyer must pay an extra 1 crore USD to the seller. This indicates there might be cross-holding because of past family relationships and economic interests between shareholders of both companies.
The report mentions that Ncell has tax and non-tax disputes of over Rs 85 arba pending in various courts and authorities. Also, when Axiata Malaysia bought 80 percent of Ncell’s shares from TeliaSonera Sweden, the actual agreement was never presented to Nepal’s regulators or the Supreme Court during judicial proceedings.
The committee noted that this raises serious questions about the transparency of the company. Ncell has faced regulatory actions multiple times, proving that it did not maintain the expected level of transparency and business ethics.
Axiata had filed a case in ICSID claiming that Nepal did not provide fair treatment and violated investor expectations. However, the ICSID tribunal ruled that the claimants were given fair hearings in Nepalese courts including the Supreme Court, so Axiata’s claim was dismissed.
Although Ncell publicly claimed its transaction value was around 40 crore USD, and the buyer Satish Lal Acharya claimed it was 40 to 45 crore USD, the committee found that these figures do not match the actual share purchase agreement and recent financial statements. Because a company with huge physical assets, remaining license period, and billions in annual profits is showing a transaction value that does not match public statements, the reliability of the transaction price is questionable. The committee concluded that the agreement between Axiata and Spectrlite is not realistic.
Recommendations for the Government
The committee has suggested the government not to accept the latest share purchase agreement in its current form. Both parties did not submit applications to the relevant authorities, nor did they take prior approval before the deal. The buyer’s technical, financial, and managerial capabilities are also not backed by enough documents.
The report suggests that before making any decision, the government must study the buyer’s technical capacity, source of investment, background of directors, and possible cross-holding. It should also look at foreign investment regulations, telecom security, business plans, and court orders.
Using Section 33 of the Telecommunications Act 2053, the committee advised the government to ensure that all assets, buildings, and equipment of Ncell come under Nepal government ownership after the 25-year license period ends. This should be made a condition during the next license renewal.
Finally, the committee suggested restructuring government and regulatory bodies like the Ministry of Communication and Nepal Telecommunications Authority to handle new technologies. It also recommended that relevant agencies should investigate potential tax evasion, foreign exchange violations, and money laundering in past Ncell transactions.
AI Disclaimer: This article was originally published on https://bajarkochirfar.com. It has been translated with the help of AI. For the best understanding and accurate facts, we recommend reading the original Nepali version.
