JOIN USCancellation sours corporate dreams
Somewhere in between January 22, when the historic Supreme Court judgement was delivered in Vodafone’s favour, and February 2, when the same court decided to cancel 2G licences of telecom firms, investor confidence about Indian market was on a high and now back on a roller coaster ride.
Norwegian telecom giant Telenor, which entered India's fiercely competitive mobile market in 2009, has already announced its decision to quit the Indian market, while Russia’s Sistema readies itself to fight the legal battle.
Same was not the case some three years ago. Telenor had hit Indian soil with a bang and always insisted it was going to stay in India to cash-in on the opportunities thrown by the world’s second largest telecom market.
Sistema and Telenor were the two major overseas firms, who along with their joint venture Indian partners, made huge investments for rolling out services across the nation.
While joint venture Sistema-Shyam has invested about Rs 12,500 crore so far for acquiring licences and rolling out services, Telenor says it has put in over Rs 6,100 crore in equity and over Rs 8,000 crore in corporate guarantees as a foreign investor. Then there are others like Etisalat, Loop, Spice and STel, who decided to foray into a large Indian middle-class market, growing at the rate of 8 to 9 per cent a year.
They feel shocked and shattered after the apex court verdict. Their investments lie in shreds and they have also been fined after the Supreme Court scrapped 122 2G telecom licences bought at throwaway prices by the new players in 2008 via a first come, first served basis.
Then, there are other tangible or intangible losses, for example, the one suffered due to the cancellation of their licences, which need to be bought afresh if the firms decide to stay on, losses suffered by hundreds of ancillary industries supporting the main business of these companies and the implications of being asked to wind-up their business mid-way, wrecking emotional havoc and questioning their future security on a foreign soil.
Legal battle
Some Supreme Court lawyers are of the opinion that the companies wanting to get back their licence fee, which is close to about Rs 1,000 crore at this point, will have to approach the apex court individually. This means another round of litigation.
According to a renowned Supreme Court lawyer, the licence fee can be returned to the companies if the court finds the loss to the exchequer was caused by a wrong policy of the government and not because of any individual wrongdoing by these companies.
But, the international investors, sitting on the fence after serving for so many years, are planning to move for international arbitration. A spokesperson of Sistema-Shyam came on record saying the company will pursue all available legal remedies.
The senior executive of the company said, the Russian government is expected to pursue the matter with the Government of India soon. The Russian Federation owns close to 20 per cent stake in Sistema-Shyam, whose permits in 21 telecom circles, except Rajasthan, were quashed by the apex court.
“The bitterness in business can have its repercussions on diplomatic relations,” said a foreign affairs analyst, who apprehends these investors can drag Indian government to United Nations Commission or the International Trade Law or the International Centre for Settlement of investment Dispute under the World Bank.
FDI implications
The decision is also expected to have a wider implication on India’s foreign direct investment programmes as investors may shy away from making the country their investment destination, especially when there is huge requirement of $1.5 trillion in coming years to upgrade India’s creaking infrastructure.
"The decision could mean a temporary shock for FDI in India, but in due course the investors will also realise that sound fundamentals of a country are necessary for sustained business,” said Mahesh Uppal, a telecom analyst.
The U-turn on permits follows a recent backtracking by the government on opening up multi-crore retail sector to foreign companies, striking a severe blow to investors waiting in the wings to do business in lucrative Indian market.
The judgment of cancelling the licences has increased the anxiety of the government too, which had approved hefty foreign investment in these ventures with Indian companies like Unitech and DB Realty, but the government has put up a brave face saying the long term implications of the verdict is far more positive.
Not only that, the SC judgement has affected more than 36 million mobile subscribers, while the future of 17,500 employees look bleak.
It has also caused collateral damage to country’s tower companies, adversely impacting their future fund raising plans. India has around 4,00,000 mobile towers and permit cancellation would mean fewer tenants for them. Experts say, the tower companies could lose 10 per cent of their business post-judgement.
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