Shareholders looking to sell as Idea’s regulatory dispute deepens

The largest shareholder in India’s Idea Cellular, the Aditya Birla Group, is reportedly looking to sell a stake in the Indian operator to MTN. In addition to the South Africa operator, Aditya Birla has revealed that it is “talking with telephone companies in the US and Europe about a deal.” Talks are very much in their inception; at this stage it is unclear if a deal will be reached.

Idea Cellular is valued at around US$5.15 billion, and Aditya Birla’s 47% stake is accordingly worth roughly US$2.41 billion. The Indian operator has offered no comment other than to dismiss the suggestion that its shareholder is looking to sell as “baseless”.

The operator is currently embroiled in an argument with the Indian telecom authorities over a recent merger with fellow operator Spice. Despite its initial authorisation of the deal, the Indian regulator has since highlighted that the two firms hold spectrum licences which overlap significantly, contravening the terms under which they were awarded.

Indian law forbids any one entity from owning over 10% of two licence holders in the same telecom circle. Idea has reportedly dismissed the regulator’s change of stance as “duplicity and muscle-flexing”, stating that it is happy to relinquish its licences without demanding compensation.

Idea has slammed the regulator’s “incoherence” as the cause of the dispute, claiming that the Indian authorities proposed alternate solutions aimed at the same outcome. The operator believes that the failure to resolve the issue has “harmed Idea and consumer interest but crucially it has caused, and continues to cause, loss of crores of revenue to the exchequer every passing week.”

The latest development in the dispute has seen the same court which originally authorised the merger grant the Indian regulator an ex-parte stay – while also denying Idea the chance to state its case. Despite the court’s initial approval, the overlapping licences belonging to the two operators may now be annulled, as their merger breached a “lock-in period clause” imposing a three-year ban on mergers from the licence’s issue date.

Idea has also faced accusations of missing rollout deadlines; while the operator’s 2G licence for the Punjab region is being revoked for this reason, the delay to its 3G rollout is due to the authorities holding back its licensed 3G spectrum.

Despite Idea’s problems, MTN is likely to pursue an expansion strategy, having thus far failed to make any headway in India – previous attempts by the African operator to reach a deal with Indian firm Reliance Communications came to nothing. MTN was also at one time considered a likely candidate for a merger with Orascom, although the Egyptian group has since merged with Russian VimpelCom.

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