KUALA LUMPUR (Dec 1): After seven turbulent years in Nepal, Axiata Group Bhd is selling its stake in Ncell Axiata Bhd by disposing of its shares in Reynolds Holdings Ltd, which holds an 80% stake in Ncell Axiata, and exiting the country.
In a statement on Friday, the multinational telco company said it had disposed of Reynolds’ shares to London-based Spectrlite UK Ltd. The deal carries a fixed consideration of US$50 million (RM233.6 million) that is to be paid over four years and a conditional consideration — which is a share of going forward distributions that depend on Ncell's business performance and net distributions it declare up till 2028, and any windfall gains that the purchaser secures during this period.
"The group's decision to withdraw from Nepal is based on a thorough evaluation of the prevailing business environment in Nepal, which led to the conclusion that continuing operations under the current conditions of unfair taxation and regulatory uncertainties was no longer sustainable for the group," the group said.
According to Axiata, it first entered the Nepal market in 2016, by acquiring Reynolds for US$1.365 billion, which effectively secured it an 80% equity interest and controlling stake in Ncell. Then between 2016 and 2020, Ncell had settled about US$421.9 million or RM1.8 billion in capital gains tax as full and final liability under the Nepalese law, with confirmation received from its Large Taxpayers Office of Nepal (LTPO) in April 2020 that no further taxes remain over its acquisition of Reynolds.
But Ncell was further assessed in January 2021 by the LTPO for a sum of NPR57.9 billion (about US$433.6 million or RM2 billion) for the same transaction. Collection of this assessment was suspended due to an interim order issued by the Supreme Court of Nepal, following Ncell’s petition disputing the assessment. Axiata said capital gains tax was imposed on the group and Ncell after Nepal’s efforts to collect tax from the seller failed.
The group then filed for arbitration at the International Centre for the Settlement of Investment Disputes, with proceedings concluded on June 9 this year, and the arbitration tribunal ruling that Nepal should refrain from demanding any further tax, fees, penalties or interest in relation to the acquisition of Reynolds in 2016. The tribunal also ruled that Nepal should refrain from enforcing the January 2021 assessment.
But the government of Nepal, said Axiata, has still not withdrawn the January 2021 assessment despite Axiata prevailing on it to abide by the terms of the award and to stop repeatedly taxing the same transaction.
The January 2021 assessment is likely to carry a present day value of US$433.6 million, inclusive of interest up to Jan 13, 2021 and penalties, said Axiata.
"If the January 2021 assessment was upheld, and ignoring any further interest after Jan 13, 2021, this would take the total taxation on the US$1.365 billion transaction in 2016 to US$855.5 million, or 62.7% of the transaction value.
"Considering the imminent and existential exposure arising from the scenario of double taxation, additional risk associated with the expiry of the company’s mobile license in 2029, with the potential of expropriation of Axiata’s stake by the government of Nepal and the unfavourable foreign investment protection environment in Nepal, Axiata had accelerated its exploration of an exit. The terms of the share purchase agreement (SPA) with the purchaser would enable Axiata to exit on a clean basis," the group said.
Axiata Group CEO Vivek Sood said the offer the group received has enabled and accelerated a clean exit for Axiata.
“Ncell retains full responsibility for its business and any of its liabilities, while the purchaser will further indemnify Axiata against existing and future Nepalese tax claims in relation to Ncell. We believe this decision is in the best long-term interests of all our shareholders," he said.
The group stressed that Axiata and Ncell have made significant contributions to the socio-economic development of Nepal. As the country’s largest taxpayer, Ncell contributed NPR283.0 billion (RM9.9 billion) in taxes and fees as of last Fiscal Year 2021/2022 since its inception, it said.
Axiata chairman Tan Sri Shahril Ridza Ridzuan said Ncell had, over the past seven years, made a total dividend contribution of RM2.2 billion to the group.
“This transaction has allowed us to exit the country in a responsible manner. The closing of the sale and the completion of our exit from Nepal enables us to focus on our strategic priorities and continue our value creation journey. We are now in a much stronger position to deliver on our strategy, refine our capital allocation priorities and explore the right strategic partnerships,” Shahril said.
Axiata shares closed seven sen or 3.10% higher at RM2.33 on Friday, giving the group a market capitalisation of RM21.39 billion. Year to date, the stock has fallen by 21.81%.