Update: Unitech has also issued a statement responding to Telenor’s notice. It has said that it can not be held liable for cancellation of licenses on account of alleged defect in the Government policy, and that the cancellation can not be considered breach of warranties on the part of Unitech. It said that the company will contest the claim made by Telenor.
It also added that the press statement made by Telenor informing about the indemnity claim was a violation of confidentiality covenants between the two companies and an attempt to malign Unitech’s reputation, and that Unitech reserves the right to initiate action for damages caused due to this action.
Earlier: Following the Supreme Court verdict on the case related to irregularities in 2G spectrum allocation, cancelling all of Uninor‘s licenses, its parent company, Norway’s Telenor, has issued a notice to its Indian partner, Unitech, holding it liable for the breach of warranties related to the cancellation of the licenses. Telenor is now seeking compensation for all investment, guarantees and damages caused by the Supreme Court Order. Telenor has also made an indemnity claim against Unitech for the failure to obtain spectrum in the strategically critical Delhi circle.
During the announcement of its quarterly results, Telenor had said that the court ruling had severely penalized the company for actions that took place before it entered India and that it was considering every option including going to court (for a review)prior to any further investments. The company had written off NOK 4.1 billion in its Indian operations during the last quarter. So through the claim, we feel that it will seek to recover some of its losses, specially at a time when it will make fresh bids for spectrum.
Cancellation of licenses is breach of warranties: Telenor
In a statement issued by Telenor, the company’s Counsel has said that the legality and validity of the licenses was a fundamental term of the share subscription agreement between Telenor Group and Unitech Limited and that the cancellation of the licenses was a clear breach of Unitech’s warranties. Since Unitech had irrevocably and unconditionally agreed to indemnify and hold harmless the Telenor Group from all damages which may be suffered as a result of breach of any of the agreed warranties, it should compensate Telenor for its investment in India, he added.
Telenor to look for a new partner
Telenor has indicated that it does not intend to exit the Indian market, however, it would not like to continue its partnership with Unitech, and will look for a new partner. This was more or less an expected move since the two companies have been at logger heads after Unitech had refused to participate in a rights issue proposed by Telenor to raise up to Rs 8200 crore. It was reported that Telenor was looking for a new partner since it could only increase its stake upto 74% owing to FDI norms.
Unitech on 11 October 2011 had also initiated a process before the special judicial body Company Law Board (CLB) by filing a petition against Uninor, the Telenor-appointed directors on the Uninor board, Telenor Asia Pte Ltd. and Telenor ASA, alleging that the respondents have oppressed the minority shareholders and mismanaged the business of Uninor.
Telenor has invested Rs 61 billion (NOK 8.9 billion) for 67.25% ownership in Uninor, and additionally is also fully guaranteeing for Rs 80 billion (NOK 8.1 billion) of short-term debt. The company had reported revenues of NOK 936 million and EBITDA loss of NOK 582 million for the quarter ended December 31st 2011. It had reported 28.3 million subscribers during the same quarter.