TeliaSonera’s December deal to sell its shares in Ncell to Malaysia’s Axiata cannot be viewed in Nepal simply as a business decision by two companies. Some indications of the gravity of the situation were already there when the Scandinavian company had announced in September its plan to exit former Soviet Union countries as well as Nepal. That announcement had come after TeliaSonera got embroiled in scandals in those former Soviet Union countries and was tired of unsuccessful efforts to take dividends from Nepal. Against this background, the nature of the deal which it has signed with Axiata now portends some more problems with Nepal that are likely to arise in the course of its implementation. 

TeliaSonera’s ownership in Ncell is not direct. The Scandinavian company holds Reynolds Holdings which in turn holds 60.4% shares in Ncell. And Axiata is buying 100% of Reynolds as well as the 19.6% of Ncell shares held by Visor, an investment firm of Kazakhstan. Thus the share transaction will not take place in Nepal. Reynolds is likely to remain the legal owner of Ncell. As a result, Nepal’s tax authority will not be able to get money from this deal. They have to be content with what they can squeeze out of the share transfer between the local shareholders who own only 20% in Ncell. 

But as both TeliaSonera and Axiata have their countries’ respective governments as their partial owners and the deal is announced publicly by both companies, the Nepali authorities might try to ask for taxes (such as capital gain tax) according to Nepal law citing examples from other countries and thereby delaying the process. Nepali authorities are notoriously good at creating hurdles to stop something from happening. 

All will be well if TeliaSonera pays as demanded and peacefully gets out of the problem that it was facing in taking the dividends out. But if it thinks otherwise and tries to fight it out, that will send negative signals to all other foreign investors that may be thinking of entering Nepal and that will include Axiata as well. More importantly, it may seriously hamper the operations of Ncell itself, a company recognised as a model of management excellence in Nepal. 

It may be recalled that Ncell was recognised as the best managed company of the year in 2014 by a panel of judges consisting of well-known experts from the fields of Economics, Management, Banking, Accounting and Public Administration under NewBiz Conclave and Awards. Also to be noted is the fact that it was the fierce competition posed by Ncell that compelled government owned Nepal Telecom to be innovative and competitive, thus benefiting the general Nepali consumer.  

This deal between TeliaSonera and Axiata also highlights other serious flaws in Nepal’s legal system. For example, the compulsory requirement of 20% shares to be in the hands of Nepali investors in this type of company is clearly unnecessary and needs revision. As this did not stop TeliaSonera to control such a 20% stake, it is not going to stop Axiata either from doing the same.  

However, if everything goes smoothly and Axiata does finally enter Nepal’s telecommunication sector, that should be a welcome development. Nepali consumers can expect similar types of innovation in Nepal as is happening in India through Idea Cellular in which Axiata is an important stakeholder.