KATHMANDU: The government investigation team has concluded that SpectraLite, a company owned by Satishlal Acharya in the UK, is not qualified to operate Ncell.
The report indicates that SpectraLite UK lacks the necessary capital, experience, and commercial capability to both purchase and manage Ncell.
The report highlights that opaque share transactions began with the establishment of Spice Nepal Pvt. Acharya acquired 80 percent of Ncell’s shares in December 2023 through questionable means, intending to evade taxes by violating Nepali laws.
This acquisition was executed by a company with a total capital of only $100,000, raising concerns about the legitimacy of the transaction.
On December 1, 2023, the Axiata Group, which previously owned 80 percent of Ncell, announced it had sold all its shares.
Axiata transferred 100 percent of its Ncell shares to SpectraLite UK Limited, a company controlled by Shatishlal Acharya, based in Singapore.
To assess the buyer’s economic, financial, technical, managerial, and administrative capacity, the committee reviewed the relevant company’s financial and technical reports, operational plans, and other necessary documents.
SpectraLite purchased these shares for $50 million (approximately 6.5 billion rupees), despite Axiata having bought them 7 years earlier from TeliaSonera of Sweden for 1 trillion 44 billion 78 million 25 lakh rupees.
The issue of capital gains tax related to the sale and purchase of Ncell shares between TeliaSonera and Axiata remains unresolved.
The abnormal low price at which Ncell’s shares were bought and sold has triggered substantial discussions among regulatory bodies, parliament, media, and political parties.
The Parliament’s Public Accounts Committee, Finance Committee, State Affairs and Good Governance Committee, and Education and Information Technology Committee have all initiated inquiries with the government, regulatory bodies, and officials.
According to Rishikesh Pokhrel, Chairman of the Public Accounts Committee, a written request was also sent to the Commission for the Investigation for Abuse of Authority (CIAA) to probe the share transactions.
Previously, shares purchased from the Swedish company TeliaSonera for NPR 104.4 billion were sold at a significantly lower price of USD 50 million (approximately NPR 6.5 billion) seven years later, sparking outrage among Nepal’s regulatory bodies, Parliament, media, and political parties.
The government faced mounting pressure as the Public Accounts Committee, Finance Committee, and State Affairs Committee of Parliament initiated inquiries into the unusual pricing of Ncell shares.
Calls for a thorough investigation into the Ncell share transactions grew louder.
In response, the government formed a five-member investigation committee, led by former Auditor General Tankamani Sharma Dangal, on December 7, 2023.
The Dangal-led committee submitted its report on January 29, 2024, following an extensive study.
The investigation committee has noted on page 74 of its report that there was a breach of regulations concerning the purchase and sale of shares between Axiata and SpectraLite.
Despite the report’s completion, the government has kept its findings confidential.
However, Khabarhub has obtained the report from a high-level government source.
The Dangal-led committee submitted its findings to the government on January 15, 2008. However, the government has been reluctant to release the report publicly.
Among those mentioned in the report obtained from high government sources, Khabarhub has already covered non-resident Nepali businessman Dr. Upendra Mahato, along with Niraj Gobinda Shrestha and Bhawna Singh Shrestha.
This discussion focuses on the issues highlighted by the government investigation regarding Shatishlal Acharya, who established SpectraLite in the UK and acquired shares in Ncell through Axiata, in apparent violation of state laws and with the intent of tax evasion.
Company lacks ability to purchase Ncell
The investigation led by the committee under Tankamani Sharma Dangal concluded that Shatishlal Acharya’s SpectraLite UK is not qualified to purchase and operate Ncell, given the legal provisions and international standards governing the sale and purchase of Ncell shares.
According to the report, SpectraLite UK is a sole proprietorship of Shatishlal Acharya.
The company was registered in the UK on September 26, 2023, with a nominal share capital of $1, shortly before acquiring Ncell shares. On November 30, the share capital was subsequently increased to $100,000.
The Share Purchase Agreement (SPA) between Axiata Group and SpectraLite stipulates that SpectraLite must pay $50 million to Axiata within four years.
Additionally, if Ncell’s services are renewed before December 29, 2029, Spectralite is required to pay an extra $10 million to Axiata.
The SPA also includes provisions for tax liabilities and other financial obligations, which the buyer must assume.
The inquiry committee found that a company with only $100,000 in capital, like SpectraLite, is incapable of meeting these financial commitments or effectively operating the service.
While Acharya was granted permission to operate SmartCell, this license has expired and been canceled.
The committee concluded that Acharya lacks the capacity to manage Ncell based on these findings.
Furthermore, the committee’s report states on page 77 that the transfer of 80 percent of Ncell’s shares to a recently registered company with insufficient capital and business experience was irregular and questionable, given that Ncell serves over 16 million customers.
Attempts to reach Acharya for comments regarding SpectraLite’s purchase of Ncell and its operational capacity were unsuccessful.
Unreported Source of Income
Under the Nepal Telecommunications Regulations, 2054, documents required for share transactions must include details about the source of income of the buyer.
However, it has been found that Spectralite has not provided this information to the Nepal Telecommunication Authority.
To assess the buyer’s economic, financial, technical, managerial, and administrative capacity, the committee reviewed the relevant company’s financial and technical reports, operational plans, and other necessary documents.
This analysis was conducted in accordance with the applicable rules and regulations.
However, SpectraLite, which purchased Ncell through Reinhold Holdings, has not submitted these required documents.
Violation of Laws in Ncell Share Transactions
The investigation has revealed that the acquisition and sale of Ncell shares breached several legal provisions, including the Telecommunications Act, 2053, the Foreign Investment and Technology Transfer Act, 2075, the Telecommunications Regulations, 2054, and the Share Purchase and Sale Regulations, 2076.
Section 27 of the Telecommunications Act clearly outlines the procedures for the sale or transfer of licenses.
It stipulates that if a license is to be sold, the transaction must be submitted to the relevant authority for approval, including all mutually agreed-upon conditions and restrictions.
If the authority finds the application acceptable, it must grant approval within 30 days of receiving the application.
The government research report also suggests that some individuals use under-reported earnings to invest in management contracts, loans, share investments, or offshore companies, managing the funds through foreign bank accounts.
The investigation committee has noted on page 74 of its report that there was a breach of regulations concerning the purchase and sale of shares between Axiata and SpectraLite.
The investigation revealed that the details of Ncell’s share transactions were submitted to the Department of Industry without notifying the Telecommunication Authority.
“Using Section 19 of the Foreign Investment and Technology Transfer Act, 2075, the parties involved in the share transactions submitted the details directly to the Department of Industry on January 13, 2080, without informing the authority,” according to the report on page 75.
The Nepal Telecommunication Authority had previously issued a written directive to the Department of Industry and the Office of the Company Registrar, instructing them not to update the transaction details due to concerns that the share purchase and sale might violate legal provisions.
Additionally, the purchase and sale process of Ncell shares has not been updated with the Department of Industry or the Company Registrar’s Office, following a petition by Gokul Bahadur Rokaya in the High Court of Patan and a writ petition by MP Amresh Kumar Singh in the Supreme Court seeking to halt the process.
According to Section 19 of the Foreign Investment and Technology Transfer Act, 2075, any changes to a holding company’s property, assets, shares, or financial instruments must be reported within 30 days with appropriate documentation.
The committee’s report indicates on page 18 that the details of Ncell’s share transactions and changes in holding from 2016 have not been submitted to the Nepal Telecommunication Authority.
Underestimation of Tax Evasion Schemes
The government investigation committee concluded that the unusually low price at which 80 percent of Ncell’s shares were sold in December 2023 may have been an attempt to evade taxes.
Page 68 of the report notes that capital gains tax avoidance was evident in Ncell’s share trading in 2016, and a similar strategy may have been employed to minimize tax liabilities this time.
The committee’s report also states that, based on international telecommunications market conditions, Ncell’s share price should range from a minimum of 1 trillion 48 billion to a maximum of 1 trillion 80 billion rupees.
However, Acharya assessed the enterprise value of the company to be between 400 and 450 million Nepali rupees.
Referencing a report published by Tribhuvan University last November on the “Informal Economy in Nepal,” the committee highlighted that 42 percent of Nepal’s economy is informal.
It noted that transactions in the informal sector are often under-reported. Page 68 of the report points out that the low transaction price was likely used to reduce tax liabilities by underreporting the income.
This mismanagement led to the company’s license being canceled by the Nepal Telecommunication Authority and its subsequent control process being initiated.
The government research report also suggests that some individuals use under-reported earnings to invest in management contracts, loans, share investments, or offshore companies, managing the funds through foreign bank accounts.
The committee’s report also raises concerns about the authenticity of the share purchase-sale agreement, which casts doubt on whether the transaction is genuine.
Professional Evaluation of Ncell
The committee’s report discusses various methods and bases for evaluating Ncell.
On page 70, it states that the estimated value of the company’s assets can be determined using the financial statements for the fiscal year 079/80, the current purchase and sale agreement, and historical share prices from past transactions.
Additionally, the committee outlines 13 criteria for maintaining the commercial value of telecommunications service providers.
Page 71 of the report details that the commercial value can be assessed based on share trading prices, tax expenses, depreciation, write-off expenses, pre-financial cost basis, book value of the company, and discounted cash flow methods.
According to the report, Ncell sold 11 shares to seven new shareholders at a rate reflecting a valuation of 1 trillion 24 billion 10 million 13 lakh 65 thousand 100 rupees at that time.
Furthermore, the committee noted that the commercial value of the company could be determined in accordance with the Income Tax Act.
Section 57 of the Income Tax Act, 2058 stipulates that if the ownership of a company changes, the company’s dues are subject to corporate income tax and capital gains tax on profits received from assets and liabilities at market value as of the ownership change date.
Page 73 of the report emphasizes that conducting a thorough audit can ascertain the market value of assets and liabilities, determining the actual value and tax liability.
Shatishlal Acharya’s Mismanagement Sinks Smart Telecom
It has been observed that Shatishlal Acharya, who acquired Ncell through Axiata in December 2023, has been unable to operate Smart Telecom effectively after obtaining the necessary permissions.
The investigation conducted by the committee led by Tankamani Sharma Dangal into the purchase and sale of Ncell has concluded that Shatishlal Acharya himself was responsible for the mismanagement of Smart Telecom.
This mismanagement led to the company’s license being canceled by the Nepal Telecommunication Authority and its subsequent control process being initiated.
Also read:
https://english.khabarhub.com/2024/26/367221/
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