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Shares drop in Indian firms following 2G licensing charges

The past weekend marked the first formal charges brought against Indian firms involved in the country’s 2G licensing scandal, with shares of Unitech Wireless and Reliance Communications falling as a result.

Both firms saw their share value slide by a substantial amount, with Unitech shares falling by 16% - its biggest decline in four months – and Reliance’s hitting a three-week low. Numerous individuals who played roles in the scandal will also face charges, among them former telecoms minister Andimuthu Raja, former DB Realty chief Shahid Balwa, former telecoms secretary Siddhartha Behura, and former secretary to Mr Raja, R.K. Chandolia.

Balwa, an entrepreneur and former MD of real estate firm DB Realty, was forced to resign following his implication in the scandal – he is the founder of Swan Telecom, which purchased spectrum at a discounted rate and was subsequently purchased by Etisalat. Charges have also been brought against Swan.

The former government employees have received more severe charges as part of the Prevention of Corruption Act, while the firms and their employees stand accused of “lesser offences” which nonetheless include conspiracy and fraud.

Raja in particular stands accused of contravening licensing regulations so as to provide favourable treatment to local companies, such as Unitech and Swan Telecom (which now trade as Uninor and Etisalat DB respectively). The minister stepped down from his position just days before the publication of a report from India’s head auditor, which alleged that he had lost the nation up to INR1.4 trillion (US$31 billion) in revenue by selling 2G spectrum in 2007 at the “unbelievably low” price of US$2.27 billion.

Meanwhile, Reliance Communications – previously cleared of any involvement in the scandal – is once again having its connection to Swan Telecom reviewed. The firm maintains that it “held only 9.9 percent of the equity share capital of Swan Telecom at the time of filing the relevant licence application in March 2007”. If true, this would clear it of any wrongdoing, as operators are permitted to hold a maximum of 10% in a competing firm.

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