Uninor, the joint venture between the real estate firm Unitech and Norwegian Telecom company Telenor, has decided to auction its mobile services business and ancillary operations in various circles.

In a media statement, the company said that by auctioning its assets, Uninor will ensure that the value of the business is secured beyond September 7, the date its license expires, following the Supreme Court verdict,  as the winning bidder would have the ability to continue Uninor’s business beyond September 7, 2012. The company will be liquidated if the auction does not take place.

What does this mean?

– Telenor, which holds 67.25% stake in Uninor, is keen to acquire the business in the forthcoming auction through an alliance partner, with which it may approach the upcoming spectrum auctions. Telenor has stated that Unitech, the other JV partner in the business does not have veto rights as the shareholder’s agreement “was based on fraud”. So the auction implies no payment to Unitech for its 32.75% stake in the JV. This would mean a write-off of Rs. 10,000 crore of investment for Unitech. This move has been strongly opposed by Unitech. Unitech has said that it would take legal action against the proposed auction, and that it will approach the company law board, as noted by Moneycontrol.

– If a bidder quotes a higher price than Telenor and its partner, the company’s assets would be sold to that bidder.

– If the auction does not take place, Uninor will liquidate the company and wind-up existing operations. Telenor might make a fresh entry with the auction.

Telenor and Unitech conflict timeline

– Uninor proposes a rights issue of Rs 6,500 crore, which is challenged by its JV partner Unitech in the District Court of Gurgaon. The court puts a stay order.

– Unitech, on 11 October 2011,  initiates 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.

– Supreme Court of India cancelled 122 2G licences  issued to nine telecom operators including Uninor by the UPA government in January 2008.

– Telenor accuses Unitech, holding it liable for the breach of warranties related to the cancellation of the licenses. Telenor also holds Unitech responsible for for the failure to obtain spectrum in the strategically critical Delhi circle.

– Meanwhile, Telenor seeks to dump Unitech, seeks compensation and a new partner and transfer all the existing assets of Uninor to its new partner and participate in the upcoming auctions for fresh licenses. Unitech claims that Telenor cannot transfer any assets of Uninor without its consent.

– Telenor threatens to exit India if govt accepts TRAI’s proposals, as reported by The Economic Times.

– The Supreme Court extendes the deadline for the auction of 2G licenses which were cancelled by it, from June to 31st August 2012, and has asked telcos whose licenses were cancelled to continue services till 7th September.

– The Department of Telecom (DoT) and Unitech ask the Foreign Investment Promotion Board (FIPB) to make a decision on Uninor’s rights issue only after taking into consideration the pending issues related to the company.

– Uninor’s board members decide to auction its mobile services business and ancillary operations in various circles.

Statement from Uninor:

” In view of the impending Supreme Court mandated cancellation of license on September 7, 2012, Uninor management has decided to conduct an auction of  Uninor’s business, including its assets, while the company is still a going concern. This will allow the company to generate the maximum possible returns for its creditors and also secure the future of Uninor’s customers, employees and business partners in the hands of new ownership. This process will ensure that the value of the Uninor business is secured beyond September 7 as the winning bidder would have the ability to continue Uninor’s business as a going concern beyond September 7, 2012. On the contrary, if the auction process is not followed, the Company would have no option but to be liquidated post September 7, when the Company loses its licences.

As far as Uninor management is concerned, this is the only logical way to proceed as it allows the value built into the company to be preserved and not destroyed once the court ordered cancellation of licenses comes into effect on September 7.

The management is obliged to take this course in light of its duties towards the Company’s stakeholders, including its customers, employees, shareholders and partners. More so when we already have an interest from Telenor Group willing to procure Uninor’s business. Telenor Asia Pte Ltd, majority shareholder of the Company, has indicated its willingness to participate through an Indian affiliate entity in the auction of the Business of the Company.

This process does not have any impact whatsoever on Uninor’s running operations and is expected to have a positive future impact on its customers, employees and partners as the winning bidder would have the ability to continue Uninor’s business as a going concern beyond September 7, 2012. If the auction process is not followed, the Company would have no option but to be liquidated post September 7, when the Company loses its licences.”

Statement from Telenor:

“The Court mandated cancellation of license will destroy any value in the Uninor business. We do not see why any shareholder should want this value destruction to happen when it is possible to conduct an open and transparent auction of Uninor’s business while Uninor is still a going concern. An open auction will also remove any dispute around the real valuation of the Uninor business.

Despite adverse circumstances, it (Telenor) is willing to participate in this auction and procure all of Uninor’s business. This will ensure that the value of Uninor’s business is preserved, and not allowed to be destroyed.

As regards Unitech’s veto rights, we believe these are automatically forfeited once it is established that the shareholders’ agreement and all rights enshrined in it, was based on fraud. We are willing to establish this in court, should the need arise.”