Kathmandu. The government has made public the report of the study and investigation committee related to the purchase and sale of Ncell Axiata, 2080 BS. A meeting of the Council of Ministers on Tuesday had decided to implement the recommendations of the report prepared by the committee led by former Auditor General Tanka Mani Sharma Dangal. The Ministry of Information and Communications made public the report after the decision of the Council of Ministers.

According to the committee’s report, Ncell Axiata has bought and sold 14 times since its inception as the Spice Cell Private Limited in 2058 BS. The committee has come to the conclusion that most of the transactions were carried out outside Nepal through offshore structures and all the records and details related to this have not been submitted to the concerned authority in Nepal. According to the report, the payment of transactions of some Nepali shareholders was not done through Nepal’s banking system but abroad.

According to the committee, the ratio of Ncell’s foreign and domestic investment has changed time and again in this period. Stating that the company currently has around 80 per cent foreign investment and 20 per cent domestic investment, the process of converting the company into a public limited company by selling 11 units of shares to seven more employees on August 3, 2020 was also not natural.

According to the committee, Ncell has invested a total of eight crore foreign and two crore rupees domestic since the inception of its business in Nepal. During the period, the company earned a profit of Rs 113.58 billion and declared a dividend of Rs 93.50 billion.

The committee concluded that out of the declared dividend, more than Rs 66.95 billion has been distributed as dividend and more than Rs 2 billion has been taken abroad under other headings. According to the report, the domestic shareholders have received Rs 19.25 billion as dividend. According to the report, Ncell has been operating mobile services by distributing more than 13 million SIM cards and has paid around Rs 302 billion to the Government of Nepal as tax and non-tax revenue. According to the committee’s report, the operating profit of the company is higher than that of telecom service providers of other countries.

The report concluded that Ncell’s parent company Axiata was earning attractive profits in Nepal compared to other countries.

According to the committee’s analysis, the profit after tax in Nepal is higher than the telecommunications business operated by Axiata in countries like Indonesia, Bangladesh and Sri Lanka. Therefore, Axiata’s statement issued on December 1, 2023, stating that the business environment in Nepal was not based on facts.

The committee report concluded that the agreement signed between Axiata Group Berhad Malaysia and Spectralite UK on December 1, 2023 was done without prior approval as per the prevailing Nepali law before trading in the shares.

According to the agreement, the initial payment will be 50 million US dollars (approximately Rs 6 billion) and the first installment of 5 million US dollars and the remaining 45 million US dollars will be paid within four years. Apart from this, the deferred consideration has to pay 80 percent of the dividend of 2023, 40 percent of the dividend of 2024 and 2025, 30 percent of the dividend of 2026 and 2027 and 20 percent of the year 2028 and 2029. According to the report, it is difficult to ascertain the actual value of the transaction as there are other possible liabilities that the buyer has to bear.

The committee’s report states that the agreement is not based on the principle of equal business dealing. Similarly, the committee’s analysis is that the seller side has dominated the agreement and the buyer side has more conditions than natural.

The committee concluded that it could not be considered as an independent and natural business agreement as there are provisions such as the seller can take dividend for years even after the sale of the shares, the seller can file a lawsuit and the seller will be exempt from the debt and liability of the company.

Clause 57 of the Income Tax Act, 2058 and other provisions have been made under the Nepal-UK Bilateral Investment Agreement on mediation and if the buyer files a case in a dispute related to Nepali tax, the seller can also participate as a co-claimor, according to the committee’s report. The committee concluded that the seller is trying to maintain indirect control over Ncell even after the sale of shares.

The committee has also raised the issue of possible financial interest and crossholding between Ncell and Smart Telecom. According to a schedule of the share purchase and sale agreement, if Ncell acquires Smart Telecom after the renewal of its license, the buyer company will have to pay an additional $ 10 million to the seller. On the basis of this, the committee has concluded that there may be a relationship of financial interest between the shareholders of Ncell and Smart Telecom. The committee has pointed to the possibility of crossholding, citing that there has been a family relationship between the two companies and their investors in the past.

According to the report, cases related to over Rs 85 billion that Ncell owes to the government including tax and non-tax are sub-judice at various levels of courts and bodies. According to the Committee, the Company has been filing cases over tax and other liabilities at various judicial bodies and at the international level from time to time.

Similarly, the committee has also stated that the agreement reached with Axiata Malaysia from TeliaSonera Sweden to buy 80 percent shares of Ncell has not been submitted to the Supreme Court for the purpose of adjudication by the regulatory body of the Government of Nepal. “This has raised questions on the transparency of the company’s transactions, and the company has been subjected to regulatory action from time to time,” the report concluded, concluding that Ncell failed to maintain the expected standards of regulatory guidance, transparency and business ethics.

According to the report, Axiata has also filed a claim with the International Centre for Settlement of Investment Disputes (ICSID) accusing Nepal of not being fair and equitable, violating investors’ legitimate expectations, refusing to deliver justice and abusing regulators.

According to the committee, the ICSID tribunal had held that the claim was not established because the claimant had been given an opportunity of a fair hearing in the judicial bodies of Nepal, including the Supreme Court. The report states that the company has not been able to submit any evidence of any action that creates a legitimate expectation from the Government of Nepal and the claim that there was no fair and equitable behavior has not been established.

According to the report, Ncell Axiata in a public statement has stated that the business value of the shares is around $400 million, but Satish Lal Acharya, who is said to be the buyer of 80 percent of the shares, has claimed that the commercial value of the company is $400 to 450 million.

However, the committee found that these figures do not match with the company’s share purchase agreement and the latest financial statements. According to the report, the credibility of the transaction value of the company that generates billions of rupees of profit annually even after paying the license and tax revenue does not match the public details. The committee also concluded that the agreement between Axiata and Spectrolite was not genuine and realistic.

The committee seems to have suggested the government not to accept the latest share purchase agreement of Ncell in the status quo. The committee concluded that although both the parties should have applied to the concerned body as per the law, such application was not submitted, the permission to be taken before the purchase and sale of shares was not taken and it was not in accordance with the terms and conditions of the agreement.

Likewise, the committee has suggested that it would not be appropriate to accept the agreement citing that sufficient evidences and documents have not been submitted to prove the technical, financial and managerial capacity of the procuring company.

The report has suggested that the government should study the technical capacity of the buyer company, source of investment, business background of the promoters and possible crossholding between the telecommunications companies and their directors while deciding whether to buy or sell shares of Ncell.

Likewise, the committee has suggested that necessary decision should be taken after studying the regulation of foreign investment in Nepal’s telecommunications sector, sensitivity of telecommunication services, guarantee of service operation, future business plan, impact on the environment of foreign investment, compliance of the laws made so far by the parties, genuineness of the terms of the agreement, transparency of the transaction and credibility of price and court orders.

Based on the provision of Clause 33 of the Telecommunications Act, 2053, the government has suggested to implement the provision of the government to ensure ownership of the property, buildings, equipments and structures related to the telecommunication service as per the situation of foreign investment after the expiry of 25 years of the license. The committee has suggested the government to ensure such ownership by putting necessary conditions in the upcoming license renewal.

Stating that there has been a big change in Nepal’s telecommunication and information technology sector after the implementation of the Telecommunications Act, 2053, the report has pointed out the need for restructuring of the government and regulatory bodies.

The committee has suggested restructuring the then Ministry of Communications and Information Technology, Nepal Telecommunications Authority and other bodies to enhance regulatory capacity and make legal reforms so that the sector can adopt new and new foreign technology.

Stating that there might have been non-transparent transactions in the past shares and ownership transactions of Ncell, the committee has also suggested the concerned body to investigate the possible issues related to revenue leakage, misappropriation of foreign currency and money laundering.

The report does not only focus on the latest share purchase and sale of Ncell but also covers topics ranging from the company’s inception to the change of ownership, offshore transactions, dividend flow, tax and non-tax liability, foreign investment, regulatory compliance, potential crossholdings, transaction value and international disputes. With the government making the report public and deciding to implement the recommendations, regulatory approval, possible investigation and legal process regarding Ncell’s share trading will gain momentum.