Telenor has settled $1.76bn in loans of its Indian joint venture, Uninor – co-owned with real estate developer Unitech – in a sign that the Norwegian company is serious about staying in India despite sky-high 2G spectrum prices.
Uninor issued a statement saying that Unitech – with which Telenor is currently engaged in an acrimonious separation – has “repeatedly refused to fund the company through its own funds and has also actively worked to stop the majority shareholder[Telenor] from doing so. In the absence of a rights offer, Uninor has relied on short-term loans from Indian and international banks that were fully guaranteed by Telenor Group.”
“Consequently, fulfilling its guarantees, Telenor Group has directly settled all of Uninor’s loans amounting to [$1.76bn] with the respective banks,” the statement continued. “This allows Uninor to continue its current operations.”
Analysts said it was a clear sign that Telenor, which owns 67 per cent of Uninor, was determined to stay in India, a testament to the subcontinent’s importance – despite the countless obstacles that seem to confront investors. It suggests that 2G auction reserve prices, much decried as excessive by the industry, are, in fact, not high enough to keep operators away from India.
“They’re doing everything they can to stay in India – clearly…that’s why there’s this whole effort,” said one Mumbai-based telecoms analyst for a foreign bank who did not wish to be named.
In February, the Supreme Court cancelled 122 2G licenses, including those of Telenor and local players like Idea and Tata Teleservices because they had been allocated during the corruption-plagued auction of 2008 that led to the jailing of the then-telecoms minister.
In July, a ministerial panel set prices for a new 2G auction at a minimum of $2.5bn for a pan-India license, or seven times the 2008 price. That auction is to be held in November at the earliest, after the government petitioned the Supreme Court for an extension on its August 31 deadline.
“The reserve prices are definitely very high, especially in the major circles of Delhi, Bombay, Karnataka, and so on,” said Ankita Somani, analyst at Angel Broking. “Even if a foreign player wants to enter, they have to have strong financial backing – because [$2.5bn] is a huge amount, and once you spend that you have capex for towers and infrastructure as well. The gestation period for telecoms companies in India is quite [long], and you need to have a decent subscriber base to succeed.”
Telenor, it seems, has concluded that its subscriber base – which fell 1.1m to 44.5m in July – is decent enough, and that the cost of doing business in India is worth it, considering the potential rewards.