Supreme Court rules on India’s telecom scandal, Telenor JV set to lose licenses

Indian Supreme Court ruled for cancellation of 122 mobile licenses awarded by the authorities in 2008. This relates to a major corruption scandal where telecommunications ministry allegedly handed out underpriced mobile licenses in exchange for bribes. Time magazine last year billed this scandal number 2 in its ”top 10 abuses of power” -article. Andimithu Raja, who was the minister in charge at the time, is in jail along with several other associates.

One affected party by the Supreme Court’s ruling is Uninor Limited, which is a a joint venture of Norway’s Telenor Group (OSE: TEL, NASDAQ: TELNF) (67.25% majority) and local firm Unitech Group. Uninor was formed when Telenor invested money into Unitech’s (primarily a real estate developer) subsidiary Unitech Wireless, which already held the licenses at the time.

Unitech sold the stake to Telenor for a hefty fee apparently far above what it paid for the licenses (Initial investment for a 60% stake around 7 billion NOK in today’s exchange. In total Telenor has invested more than double that in India). This means that Telenor is not being blamed for the events but should undoubtedly have done its due diligence better.

One Unitech executive is also being charged in the scandal. Unitech Wireless is also one of three companies receiving a fine in the Supreme Court ruling. At the time when Telenor made the acquisition, the parent company Unitech was under some considerable liquidity problems.

Uninor now has its licenses revoked in all of India’s 22 telecom circles. The cancellation shall enter into force in four months and the Government may seek recommendations from Telecom Regulatory Authority of India on reallocation of the licenses, apparently auctioning the licenses anew.

Telenor says it has not had the opportunity to review the ruling and will comment further later on. The company intends to do everything it can to be able to continue operations in India. The ruling is nonetheless very dramatic for Telenor. Further legal battles for related issues might arise and certainly the operations in India are now under considerable risk. Telenor has previously communicated of this potential risk in its filings. Uninor currently has nearly 25 million subscribers and offers services in 13 telecom circles. Telenor’s stock retreated 4.44% in Thursday's trading session.