The long-winding 2G scam and the recent Supreme Court order to cancel 122 licences has claimed its first casualty.
Bahrain Telecommunications Co (Batelco), which holds a 42.7% stake in the Indian venture, STel Pvt Ltd (STel), has agreed to sell its entire holding to its Indian partner Sky City Foundation Ltd for 65.8 million Bahraini dinar ($174.5 million) — the same price that it had paid in May-June, 2009 for acquiring the stake.
According to Batelco, the carrying value of its equity in STel was $123.3 million as on December 31, 2011.
The agreed timeframe for completion of the sale is end-October.
STel is a small player in the domestic market with 3.6 million subscribers — that’s just 0.4% of the 900 million cellular subscribers in the country — and ranks 12th among 15 players by subscriber numbers. It has licences in six of the 22 telecom circles.
Batelco had been considering the exit option for some time in view of the mounting uncertainty and rising competition which have hit the investments and bottomlines of most operators.
“This is a part of an earlier understanding with its Indian partner to exit, given the circumstances surrounding the 2G probe in India over the past 12 months. BMIC Ltd (Batelco’s 100% subsidiary) had decided, as early as April 2011, to actively pursue the sale of this (STel) investment. Batelco Group had disclosed in its financial accounts for the period ended June 30, 2011 that BMIC’s investment in STel was presented as an asset held-for-sale,” said the statement issued by the Bahrain company on Wednesday.
However, Batelco has not ruled out a return to the Indian market. Its statement, in fact, quoted chief executive Shaikh Mohamed bin Isa Al Khalif as saying it was already scouting for “investment opportunities to participate in the Indian telecom market.”
“As Batelco continues to grow and diversify its operations, we remain interested in other investment opportunities for the Batelco Group that will enable us to participate in the Indian telecom market. We are actively exploring all options in this respect over the coming months,” said Al Khalif.
Interestingly, the Bahrain telco has been facing rough weather in other markets as well. It was served a notice by the Telecom Regulatory Authority of Bahrain for anti-competitive practices in some international markets in September last year and given time until October 13 to respond to the notice.
Analysts believe the Supreme Court ruling to scrap licences issued in 2008 to eight operators spurred Batelco’s decision to quit the Indian market.
“Batelco was anyway looking at an exit option, and the SC ruling has just driven that forward. Since there was no guideline on M&As from the government, this ruling provided an easy exit option. I believe if the reserve price is high in the auctions, STel may not participate,” said Ashish Basil, telecom partner, Ernst & Young.
Kunal Bajaj, partner with telecom research firm Analysys Mason, believes Batelco chose to move out of the Indian market as it did not expect to see its investment yielding returns any time soon.
Both Basil and Bajaj do not expect STel to participate in the coming auction, expected to be held after four months, following the submission of recommendations by the Telecom Regulatory Authority of India.
Other foreign investors being closely watched by analysts are Norway’s Telenor, UAE’s Etisalat and Russia’s Sistema. While Sistema and Telenor have reiterated their interest in the Indian market, the latter has said it exit was an option for it. Both are trying to protect their investment in India through diplomatic and government intervention.