Etisalat to fight partner's 'baseless' claim

Etisalat has vowed to defend a "baseless" legal claim made against it a partner of its troubled joint-venture in India - with video

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Etisalat has vowed to fight a "baseless" legal claim made by its partner in Etisalat DB, the company's troubled joint venture in India.

Video: The Indian saga has already hit Etisalat shares

Farah Halime looks at a tough morning for Etisalat.

The telecommunications company, based in Abu Dhabi, said it would "resolutely defend" the proceedings filed against it by two executives who are currently in jail on corruption charges.

The action, against Etisalat and "various individual directors of Etisalat DB", has been filed with the Company Law Board in India, according to a statement issued to the Abu Dhabi bourse.

Etisalat's statement did not specify the reason for the action, although Indian media reported it was because of alleged "operational mismanagement".

The proceedings were served by Majestic Infracon Private, which owns 45.73 per cent of Etisalat DB, a joint venture with the UAE operator. Majestic is controlled by Shahid Balwa and Vinod Goenka, who were arrested earlier this year in an alleged corruption scandal involving the allocation of India's second-generation mobile phone licence. DB Group, which controls Majestic and in which Mr Balwa and Mr Goenka hold executive positions, declined to comment when contacted by The National. The company and its officials have denied any wrongdoing, according to press reports.

The legal claim is to "the detriment" of Etisalat DB's shareholders and customers, Etisalat said.

"This is a cynical tactical move by parties charged with major corruption offences to shift attention away from their own situation and to disrupt the proper running of Etisalat DB," the company said.

"The management of Etisalat DB has been made dramatically more difficult by Mr Balwa and Mr Goenka being in prison," it added.

Etisalat acquired its stake in Swan Telecom for US$900 million (Dh3.3 billion) in March 2009 in a deal that included management control.

The company was later renamed Etisalat DB, in which the UAE firm currently owns a 44.73 per cent stake.

Etisalat said it was "investigating closely [how] Mr Balwa persuaded it to invest in Swan".

The company reiterated it made the investment in the joint venture after Swan had obtained the operating licences subject to the corruption investigation. Shares in Etisalat, which are traded on the Abu Dhabi Securities Exchange, closed unchanged yesterday at Dh10.85.

Simon Simonian, a telecoms analyst at Shuaa Capital, said his firm had not revised its price targets for the company in light of the legal claim.

"We're not assigning any value for the Indian startup operation," Mr Simonian said. "I don't think it will have an impact on the share price."

Mr Simonian said he believed Etisalat had "good" intentions in pursuing its Indian venture. "They believed in the long-term potential in India, they felt they need to be there, and they wrote a big cheque. And suddenly they find themselves in the midst of this mess, the scam allegations," he said.

Matthew Reed, an analyst at Informa Telecoms & Media, said the Indian venture was in line with Etisalat's plan for international expansion. But he said it had faced difficulties.

"Etisalat is being thwarted … by fierce competition in the Indian market, which led it to hold back from a full launch; and then more recently by a series of adverse political and legal developments," Mr Reed said.