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Oslo discord

17 October 2011 By Jeff Glekin

Telenor is in a sticky spot over its Indian telecoms joint venture. The Norwegian group wants to raise $1.8 billion in new equity for Uninor, which it owns alongside India’s Unitech. Unitech has resisted the issue at every stage, even appealing unsuccessfully to the Supreme Court. In what appears to be a last throw of the dice, it petitioned India’s company law board last week. But even if Unitech wins its legal battle, the firm will still need to pay down its unsustainable debts, which makes the court case an unwelcome distraction.

The venture has had problems. In 2009, Telenor invested $1.2 billion for a majority stake alongside India’s number two property firm. Both Uninor and Unitech’s managing director were later charged in India’s 2G telecoms scandal.

Today the business is saddled with $1 billion in debt. According to the Uninor board, its equity stands at just $81 million. That means that the potential $1.8 billion in new equity would dwarf the existing equity, and if Unitech doesn’t participate, its stake would fall to less than 2 percent. Unitech has disputed Telenor’s valuation in its petition to the law board.

Meanwhile the venture is under pressure. Funding has dried up for the sector, which makes refinancing Uninor’s debts difficult. The 2G scandal, and the fact that telecoms margins have been savaged due to intense competition, don’t help. Uninor is relying on short-term funding which Telenor itself is guaranteeing. While Telenor says the only viable option is to raise equity, Unitech counters that local funding is still available, albeit probably on a short-term basis.

India’s new telecoms policy insists that firms maintain a national, not just regional, network. But it’s hard to see how Uninor can do that without new equity capital. Unitech has debt of its own, so it may find it hard to inject more money. But even if it wins the legal battle, it’s not clear that Uninor’s problems will be solved in the longer term without its current owners recapitalising the business, or selling to others who can. That makes the current spat look like an unwelcome distraction.


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