KATHMANDU: On December 1, 2023, the Axiata Group, which had held an 80 percent stake in Ncell, announced the sale of all its shares.
The shares were sold to SpectraLite UK Limited, a company owned by Singaporean national Shatishlal Acharya.
The transaction involved the transfer of Ncell’s shares held by Reynolds Holdings, a company based in the tax haven of St. Kitts and Nevis.
According to the financial statement for the fiscal year 079/80, Axiata sold its 80 percent stake at a profit, with payment scheduled in installments up until December 29, 2029.
Axiata had originally acquired these shares seven years earlier from TeliaSonera of Sweden for approximately NPR 1.05 trillion.
Following the sale, Shatishlal Acharya’s family now controls all of Ncell’s shares, except for 11 shares.
Previously, Axiata Group owned 80 percent of Ncell Axiata Pvt Ltd, while the remaining 20 percent was held by Sunivera Capital Ventures Pvt Ltd, a company owned by Shatishlal’s wife, Bhawana Singh Shrestha.
The low price at which Axiata sold its shares raised concerns among Nepali citizens, media, and political and regulatory bodies.
The situation was further complicated by unresolved issues related to capital gains tax from previous transactions involving TeliaSonera and Axiata, with ongoing court cases involving significant financial liabilities.
The investigation committee’s study has cast doubt on the legitimacy of the recent sale of Ncell shares by Shatishlal Acharya to Spectralite, noting various conditions including a $50 million payment by Axiata Group.
In response to public pressure, including inquiries from parliamentary committees and media, the government formed a five-member committee led by former Auditor General Tankamani Sharma Dangal.
The committee also included Government Secretary Phanindra Gautam, Joint Secretaries Ritesh Kumar Shakya and Baburam Bhandari, and Nepal Chartered Accountants Association President Sujan Kumar Kafle.
The committee submitted its report to the government on January 29, 2024.
Despite its completion, the government has yet to release the report to the public.
However, Khabarhub has obtained the report through high-level sources and is now revealing its contents.
The unpublished research report includes findings on various aspects of Ncell’s share transactions, capital gains tax evasion, offshore dealings, and license renewals over the past five years.
The report also recommends government actions and suggests further investigations and potential prosecutions related to several parties.
Ncell’s Share Transactions Over 20 Years
The report details that Ncell’s shares changed hands 14 times between the fiscal years 060/61 BS and 079/80 BS.
Initially, Spice Nepal Pvt Ltd was established in 2058 with investments from Modi Corp and Spice Cell Limited India, along with Nepal’s Khetan Group.
In the fiscal year 060/61 BS, ownership was distributed as follows: Modi Corp Ltd. (55%), Spice Cell Ltd. (5%), and Khetan Group Pvt. Ltd. (40%).
By 062/63, the ownership included Spice Cell Limited (5%), Raj Group (11%), Dalto Trade Company Pvt Ltd of Cyprus (17%), Reinhold Holding Limited of the West Indies (59%), and Synergy Nepal Pvt. Ltd. (8%).
Ownership dynamics continued to shift, with Dalto Trade, Reinhold, and Synergy adjusting their stakes in subsequent years.
By fiscal year 065/66 BS, Dalto Trade had exited, leaving Reinhold with 80 percent and Synergy Nepal with 20 percent.
In fiscal year 068/69, Niraj Gobinda Shrestha acquired 20 percent of Synergy’s shares, which he later sold to Sunivera Capital Ventures Pvt. By the fiscal year 079/80, Reinhold held 79.99 percent of Ncell’s shares, Sunivera Capital owned 19.99 percent, and the remaining shares were distributed among other entities.
Past Buying and Selling of Shares: A Call for Investigation
The research report highlights concerns about fraudulent activities in the buying and selling of Ncell shares over the years.
The report also raises questions about the legitimacy of transactions involving Upendra Mahato, the founding president of the Non-Resident Nepali Association, and Niraj Gobinda Shrestha.
Specifically, it scrutinizes whether these individuals were appropriately classified as Nepali or non-resident during their acquisition of 20 percent of Ncell’s shares.
Page 33 of the report indicates that both individuals’ nationalities and their trading rights need clarification. Page 54 further calls for a detailed investigation into these matters.
Additionally, the report questions the source of $230 million used by Niraj Gobinda Shrestha to purchase shares through Upendra Mahato and the loan received from a foreign company.
It highlights a potential discrepancy in compliance with Nepal’s telecommunications policy, which mandates at least 20 percent Nepali investment in the sector.
The report notes on page 54 that Shrestha acquired shares as a Nepali citizen but reported taxes as a non-resident.
The report also criticizes the practice of issuing shares at a discounted rate to company employees, described as an unnatural practice on page 54.
An analysis on page 53 details discrepancies in past share transactions, noting that when Shrestha sold shares to Bhawana Singh Shrestha’s company, Sunivera Capital, the companies involved provided conflicting details. This issue was previously highlighted in the General Account’s 54th report.
Furthermore, the report recommends investigating the source of the loan used by Bhawana Singh Shrestha to purchase shares and whether there were any international transactions.
It also suggests examining Bhawana Singh Shrestha’s capacity and motivations for investing in Singapore, as noted on page 55.
The report underscores the need for further investigation into tax exemptions and other financial matters previously addressed by the Auditor General’s report.
Financial Interests Across Ncell and Smart Telecom
The research has uncovered a financial interest group with connections to both Smart Telecom and Ncell.
This group has been involved in the ongoing ‘takeover’ process, now under scrutiny by the Nepal Telecommunication Authority.
Page 34 of the report details the shareholders of Smart Telecom as of August 9, 2016, 2007, including Square Network Pvt Ltd, Lalsinghu Holdings Pvt Ltd, and Kosovo Investments Limited.
Key figures such as Shatishlal Acharya, his brother Sachinlal Acharya, and his wife Bhawana Singh Shrestha—currently a 20 percent local shareholder in Ncell—were identified among these shareholders.
The report on page 35 highlights that before Sunivera Capital Ventures Pvt Ltd acquired 20 percent of Ncell’s shares in Chaitra 2072 BS, Sachinlal Acharya served as chairman and Shatishlal Acharya as Director.
The same page also reveals that Shatishlal Acharya is the director of Lalsinghu Distributors Pvt Ltd in Singapore, a company that owns 50 percent of Smart Telecom.
Further investigation suggests that Acharya’s family acted as Nepali investors for TeliaSonera, a Swedish company that sold its 80 percent stake in Ncell in 2016.
The 2016 financial statements of TeliaSonera reported receiving $1.36 billion for its Ncell stake and $48 million from Singapore’s Sunivera Capital Ventures, which is associated with Bhawana Singh Shrestha.
Following the acquisition of 100 percent ownership from Axiata Group, Shatishlal Acharya’s company in the UK now holds 80 percent of Ncell.
The remaining 20 percent is owned by Sunivera Capital Ventures, which is controlled by Shatishlal’s wife Bhawana Singh Shrestha.
The report concludes that Shatishlal’s family has systematically acquired significant stakes in Ncell, leveraging investments in Smart Telecom and various holding companies, and now maintains full ownership of Ncell.
Assets, Turnover, and Profits Decline: Banks’ Billions at Risk
The research report reveals alarming financial declines and risks associated with Ncell following its acquisition by Axiata Group.
The report indicates a dramatic increase in Ncell’s debt and current liabilities. In the financial year 2079/80 BS, debt liabilities surged to NPR 1584.23 crore and current liabilities reached NPR 2275.39 crore, compared to zero debt liabilities in the financial year 072/73 BS.
This significant rise in liabilities came after Axiata Group Berhad took over Ncell’s shares.
Declining Financial Metrics
From the fiscal year 2072/73 BS to 2079/80 BS, Ncell’s financial performance shows concerning trends.
Share capital increased marginally from NPR 100 million in FY 2072/73 to only NPR 100.07 million by FY 2079/80.
Accumulated profits peaked at NPR 81.34 billion in FY 2073/74 but fell to NPR 17.90 billion by FY 2079/80, following the declaration of dividends.
The maximum debt liability was NPR 21.94 billion in FY 2077/78 but decreased to NPR 31.56 billion in FY 2079/80.
Current assets were reported at NPR 17.5 billion, with current liabilities at NPR 22.75 billion, as noted on page 40 of the report.
The report highlights a significant decline in accumulated capital, accumulated profit, fixed assets, and current assets in FY 079/80 compared to FY 072/73.
It recommends that Nepal Rastra Bank should closely regulate the billions of rupees in loans taken by Ncell under the guarantee of Axiata Group Berhad following the latest share sale agreement.
Risks for Smartcell
The research also indicates that Smartcell, managed by a holding group with ties to Shatishlal Acharya’s family and currently undergoing takeover by the Telecommunication Authority, faces risks related to NPR 4.49 billion borrowed from various banks.
Foreign Exchange and Legal Issues
The report reveals that Ncell has utilized NPR 66.95 billion in foreign exchange facilities from Nepal Rastra Bank since the fiscal year 072/73 BS.
Additionally, NPR 24.8 million in foreign currency facilities was used for technical and managerial services, and NPR 1978.90 million in dividends was distributed to Nepali investors.
Despite high profits indicated by financial metrics—per share income of NPR 8634.96, per share dividend of NPR 7792.33, return on investment of 9.17%, and return on capital investment of NPR 8634.96—the company faces significant legal challenges.
The report details ten ongoing cases involving Ncell Aziata Limited with claims exceeding NPR 85 billion.
Page 73 of the report mentions that the company’s commercial value and tax liability could be further clarified through a thorough audit, according to Section 57 of the Income Tax Act, 2058.
These cases address issues such as income tax, value-added tax, advance tax, capital gains tax, and ownership change tax assessments (page 51).
Concerns Over Stock Sale and Transactions
The investigation committee’s study has cast doubt on the legitimacy of the recent sale of Ncell shares by Shatishlal Acharya to Spectralite, noting various conditions including a $50 million payment by Axiata Group.
The terms of the sale, including payment over four years, a fixed percentage dividend by 2029, and an additional $10 million payment contingent on Smart Telecom’s renewal, appear unusual and raise concerns about the fairness and credibility of the agreement.
Pages 61 and 62 of the report outline these terms, and page 66 suggests the agreement may be skewed in favor of the seller.
The report also questions the rationale behind selling Ncell, a company bought for approximately $1.5 billion in 072, for a significantly lower price of $6.5 billion after eight years.
It raises suspicions of potential under-invoicing and illegal financial practices.
Potential Tax Evasion and Unreliable Transactions
The report suggests that the low sale price could be part of a tax evasion scheme, unreliable payment methods, and miscalculated liabilities.
It highlights the need for a detailed investigation into possible use of hundi, hawala, or cryptocurrency in these transactions (page 70).
Evaluating Ncell’s Professional Valuation
The investigation committee’s report outlines various methods for accurately evaluating Ncell.
On page 70, the committee suggests that the company’s value can be assessed using several bases, including the financial statements for the fiscal year 2079/80 BS, the current purchase and sale agreements, and historical share prices.
The report details 13 factors for maintaining the commercial value of a telecommunications service provider.
According to page 71, these factors include share trading prices, tax expenses, depreciation and write-down expenses, pre-financial cost basis, the company’s book value, and discounted cash flow methods.
Shatishlal Acharya has not provided details on the company’s income sources. According to the Telecommunications Regulations, 2054, when buying and selling shares, documentation on the source of income must be submitted.
The report notes that Ncell recently sold 11 shares to seven new shareholders. Based on this transaction, the estimated share price is approximately NPR 1.24 trillion (124 billion 10 million 13 thousand 65 hundred).
Additionally, with accumulated profits of NPR 15.28 billion from July 19, 2017, to December 21, 2023, the company’s share price could potentially increase.
The committee also evaluated Ncell’s commercial share price based on profit before tax expenses, depreciation and write-offs, and financial costs (EBITDA).
The commercial value was calculated to be NPR 1.49 trillion (148 billion 89 crores).
Page 73 of the report mentions that the company’s commercial value and tax liability could be further clarified through a thorough audit, according to Section 57 of the Income Tax Act, 2058.
This section requires that if company ownership changes, corporate income tax and capital gains tax be assessed on the market value of assets and liabilities.
Shatishlal Acharya’s Capability to Operate Ncell
The committee’s investigation concluded that Shatishlal Acharya’s company, Spectralite UK, is not financially or technically capable of purchasing and operating Ncell.
Spectralite UK, solely owned by Shatishlal Acharya, was registered in the UK with an initial share capital of just $1.
The share capital was later increased to $100,000 on November 30, 2023. According to the share purchase agreement (SPA) between Axiata Group Berhad and Spectralite UK, Spectralite is required to pay $50 million to Axiata within four years.
Additionally, if Smartcell or Ncell is renewed before December 29, 2029, Spectralite must pay an extra $10 million.
The SPA also includes provisions for tax liabilities and mortgage requirements that the buyer must assume.
The investigation committee concluded that Spectralite UK, with its limited capital, is unlikely to meet these financial obligations and operate Ncell effectively.
The report emphasizes that Acharya’s Spectralite Limited is financially and technically unsuitable to handle Ncell.
The committee noted that, for approval of the Ncell share purchase and sale agreement, proof of financial, technical, and managerial capability was necessary.
Ensuring that the investment ratio of 80 percent foreign ownership and 20 percent Nepali ownership remains unchanged until the government takes over in August 2086.
Shatishlal Acharya has not provided details on the company’s income sources. According to the Telecommunications Regulations, 2054, when buying and selling shares, documentation on the source of income must be submitted.
However, Spectralite UK has reportedly refused to provide these details to the Nepal Telecommunication Authority.
Previously, Shatishlal Acharya received permission to operate Smartcell, but the company’s license has since expired and been cancelled.
Based on this, the committee concluded that Acharya lacks the capacity to operate Ncell.
Ncell’s Evaluation and License Renewal Issues
The investigation committee’s report outlines several bases for evaluating Ncell.
On page 77, the report describes the transfer of 80 percent of the company’s shares to Spectralite UK— a company registered only three months prior, with insufficient capital and no professional experience—as unnatural.
Given that Ncell serves over 16 million customers, the report suggests that such a transfer lacks validity.
To analyze the economic, financial, technical, managerial, and administrative capacity of the buyer, the committee reviewed relevant economic reports, technical documentation, and operational plans.
However, Spectralite UK, which acquired 80 percent of Ncell’s shares through Reinhold Holding, did not provide these essential documents.
Renewal of Ncell’s License
Even if Ncell’s license is renewed by August 31, 2024, the company will come under the ownership of the Nepalese government in 2086 BS.
The committee’s report, found on pages 87 and 88, recommends that Ncell’s license renewal should only occur after the company settles all due taxes.
The report also notes that the government can impose new conditions during the renewal process.
According to Section 33 of the Telecommunications Act, 2053, if the company’s license expires, it will automatically transfer to the Government of Nepal.
Thus, the committee suggests adding new conditions, including:
Payment of all taxes and obligations to the Nepalese government.
Prohibiting declarations and payments of dividends without settling government dues.
The report also highlights the need for a comprehensive study of investments from tax haven countries, as these investments often involve significant financial flows that may lack transparency.
Ensuring that the investment ratio of 80 percent foreign ownership and 20 percent Nepali ownership remains unchanged until the government takes over in August 2086.
Additionally, the report recommends that the government:
- Prohibit the provision of excessive benefits to employees and workers.
- Prevent unreasonable increases in international and prevailing telecommunication service charges.
- Ensure that two directors with public company experience are appointed.
- Require a commitment to transfer the company with zero liabilities to the government.
Allegations of Financial Misconduct
The government research report indicates that Ncell collected substantial sums from customers through auto-renewal of Value Added Services (VAS) until 2077 BS.
Despite a directive from the Nepal Telecommunication Authority on June 12, 2017, to end this practice and impose a fine of NPR 50,000, Ncell did not comply.
The investigation did not disclose how many customers were affected by the VAS renewal charges.
Further, Ncell used promotional offers to attract customers, which were not in compliance with telecommunications regulations.
Ncell also faced fines for not adhering to internet service tariff rates and allegedly collected nearly NPR 7 billion through various subscription packs for Game Loft and Huawei App Gallery.
The Authority had instructed refunds totaling NPR 1.11 billion to affected customers between 2075 and 2077 BS.
However, the investigation report lacks details on whether this directive was implemented.
The report, particularly on pages 51, 52, and 53, mentions that Ncell has unlawfully collected significant amounts from customers under various pretexts.
Recommendations for Amending the Act and Enhancing Regulatory Effectiveness
The committee investigating the purchase and sale of Ncell has proposed a series of recommendations aimed at improving the legal and regulatory framework surrounding foreign investments and telecommunications.
One of the key suggestions is to amend the Telecommunications Act to introduce renewal fees based on a percentage of the company’s annual income.
This approach, modeled on international practices, would ensure that renewal costs are aligned with the company’s financial performance, thereby providing a fair mechanism for assessing fees.
Furthermore, the committee recommends implementing stricter conditions for license renewal to ensure that Ncell’s license is transferred to government ownership after a five-year period.
Overall, the Committee’s report calls for comprehensive reforms to enhance the effectiveness and transparency of both the legal framework and the regulatory body governing Nepal’s telecommunications sector.
This proposal aims to secure government control over the telecommunications sector in the long term, reinforcing regulatory oversight and accountability.
The report also highlights the need for a comprehensive study of investments from tax haven countries, as these investments often involve significant financial flows that may lack transparency.
By investigating these transactions, the government can better understand and manage foreign investments to prevent potential abuses.
In addition, the committee notes that the current legal process related to Ncell’s share trading is incomplete.
It calls for strengthening legal measures to close existing gaps and ensure that the regulatory process is robust and effective.
To address serious financial and commercial scams, the committee advocates for the creation of a dedicated mechanism to investigate such issues, citing examples like the Panama Papers and WikiLeaks as sources of significant concern.
The report also raises serious concerns about the effectiveness of the Nepal Telecommunication Authority (NTA).
It criticizes the authority for its inability to perform regulatory duties efficiently and in a timely manner, as required by Section 13 of the Telecommunications Act 2053 BS.
This ineffectiveness has led to numerous regulatory challenges and service issues.
Additionally, the NTA has been faulted for failing to prioritize accessible and quality customer services, lacking capacity enhancement, and not publishing annual reports on time.
Financial management practices within the NTA are also questioned.
The report points out that, despite banks offering interest rates of around 9.75 percent on term accounts, the NTA kept a significant amount of funds in a call account at a much lower interest rate, resulting in a loss of over NPR 1 billion.
This practice has not only caused financial loss but also exposed the NTA’s capital to unnecessary risks.
The committee further criticizes the NTA’s complaint handling mechanism, noting its ineffectiveness, and underscores the need to update the Know Your Customer (KYC) information for service providers.
Additionally, the report emphasizes the necessity for reforms to make telephone services more competitive, reflecting broader concerns about the sector’s overall performance.
Overall, the Committee’s report calls for comprehensive reforms to enhance the effectiveness and transparency of both the legal framework and the regulatory body governing Nepal’s telecommunications sector.
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