Dh3bn hit for Etisalat with licence loss in India

Etisalat takes a Dh3 billion hit in India, after its joint venture there was stripped of its mobile license in an ongoing corruption case.

Etisalat - through its Etisalat DB joint venture - was one of several telecoms operators to lose its mobile licence in India. Sarah Dea / The National 
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Etisalat has taken a Dh3 billion (US$816.7 million) hit in India, after its joint venture in the subcontinent was stripped of its mobile licence.

The UAE company - through its Etisalat DB joint venture - was one of several telecoms operators to lose its mobile licence in India under a ruling by the country's supreme court.

Etisalat reported an impairment charge of Dh3.04bn due to the cancellation of the licence.

This had a net impact of Dh1.02bn on its profit, after a royalty fee to the UAE government, the firm said.

"The supreme court's decision took the entire industry by surprise and significantly alters the competitive landscape in India's telecommunications market," Etisalat said in a statement.

"Etisalat expects the government of India to bring about a rapid and just solution and to fairly compensate investors," it added.

"Etisalat is also continuing to assess the legal consequences of the supreme court's decision and Etisalat's strategic options in India."

In a dramatic court judgement, the supreme court of India last week revoked 122 mobile licences that were issued in January 2008.

The licences were sold at cut-price rates, leading to a wide-ranging corruption scandal over estimated potential losses to the Indian state of up to US$36bn.

Swan Telecom was one of the companies that acquired the licences. Etisalat later acquired a stake in the firm and the company was renamed Etisalat DB.

Ibrahim Masood, a director and senior investment officer for asset management at Mashreq, said that the write-down disclosure by Etisalat provides clarity to the market.

"They seem to have taken it in one shot, so that's a good thing," said Mr Masood.

He said that he did not see a long-term impact on Etisalat's share price.

"Perhaps this will spook a few investors," said Mr Masood. "But I'd be surprised if there was a sell-off. I'd expect that to be short-lived."

Etisalat's impairment charge on its Indian operation hit the firm's bottom line for last year.

Total profits, after a royalty payment to the UAE government, stood at Dh5.84bn last year, Etisalat said yesterday. That represented a 23.5 per cent drop in profits on 2010, which stood at Dh7.63bn.

Etisalat's group revenues last year edged up by 1 per cent to Dh32.24bn, compared with Dh31.93bn in 2010.

In the UAE, the group reported 7.8 million mobile customers, 1.05 million fixed-line telephone customers, and 1.41 million internet users.

Mr Masood said Etisalat's results were fairly encouraging, especially given the increasing competitive threat from rival du in its domestic market.

"The operational side for a mature telecoms operator wasn't too bad," he said.

Etisalat's move to report impairment charges for its Indian operations follows a similar step by Norway's Telenor, which last week wrote down $721m in licences and goodwill in India, Reuters reported.

It also follows a decision by the Bahraini telecoms company Batelco Group to abort its operations in India.

On Wednesday, Batelco said it is selling its stake in the Indian mobile operator STel, making it the first operator to exit India following the court's decision to cancel mobile licences there.

BMIC, a subsidiary of Batelco, has agreed to sell its 42.7 per cent stake in the firm to its Indian partner Sky City Foundation Limited, for $174.5m.

Batelco said the decision to sell the stake was made in April 2011. However, confirmation of the sale came just a week after India's supreme court cancelled the mobile licence belonging to STel, along with other companies such as Etisalat DB.

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