Billionaire Mittal in India Legal Spat Adds to Investor Unease

Billionaire Mittal in India Legal Spat Adds to Investor Unease

Billionaire Sunil Mittal and his company Bharti Airtel Ltd. (BHARTI) are locked in legal battles in India’s top court that some fund managers say could drive wary investors away from the world’s second-largest wireless market. India’s Supreme Court today ordered a lower court to halt proceedings against Mittal until April 15 when it will next hear his challenge to charges relating to Bharti’s purchase of mobile-airwaves beyond the legal limit. A three-judge panel headed by Chief Justice Altamas Kabir asked federal investigators to file a reply to Mittal’s petition. Mittal, 55, faces legal battles even as the Supreme Court in February 2012 canceled 122 licenses tied to India’s largest graft case that led to the exit of Bahrain Telecommunications Co. (BATELCO) and Emirates Telecommunications Corp. Foreign direct investment into India’s telecom industry shrank to $93 million in the first 10 months of the year ended March 31, from $2 billion for the previous 12-month fiscal period, according to data from the Department of Industrial Policy and Promotion.

“When I heard about this case, I thought ’Oh, here we go again’,” Taina Erajuuri, a Helsinki-based fund manager at FIM Asset Management Ltd., said by telephone on April 5, referring to Mittal’s case. “I don’t own telecom stock in India, and that’s for a reason. It’s become too unpredictable, with other places being much safer, without legal or regulatory problems.” Mittal, heralded as one of India’s entrepreneurial leaders who started his business in the 1970s by selling bicycle parts, has been charged with acquiring airwaves in excess of a government limit. India’s Central Bureau of Investigation filed criminal charges in December against Bharti, along with government officials and two other carriers, for revising rules to allocate wireless spectrum, which led to a loss of about 8.5 billion rupees ($155 million) to the exchequer.Fight Charges

Bharti said on March 19 the company would fight the charge sheet, which was “an attempt to tarnish” its reputation. Bharti, India’s biggest wireless operator, also won a temporary reprieve in a case over nationwide roaming agreements for third- generation services until April 11. The court told the Department of Telecommunications not to take coercive action against Bharti till its next hearing.

Bharti’s shares have declined 15 percent in Mumbai trading in the past 12 months, compared with a 5.4 percent increase in the benchmark S&P BSE Sensex Index. Billionaire Anil Ambani’s Reliance Communications Ltd. (RCOM), the third-largest carrier by subscribers, has lost 23 percent in the period. The court’s ruling on Mittal was made after market hours.

‘Undermine’ Confidence

“Mittal’s case along with the 3G rulings are continuing to undermine investor confidence,” Mohammad Chowdhury, leader of telecommunications practice at PricewaterhouseCoopers in Mumbai, said by phone on April 7. “India had attracted investment despite local problems because opportunities were far poorer elsewhere, but those cracks in the wallpaper are really showing while the sheen of growth has gone away.”

The New Delhi-based company has seen its profits decline for two consecutive years while its debt has climbed almost sevenfold since 2010, according to data compiled by Bloomberg. The company raised $1.5 billion last month to help fund $2.3 billion of capital spending after interest costs contributed to a 72 percent drop in net income in the December quarter.

Call rates in India remain among the lowest in the world while the volume of 3G subscribers remains too small to cover the costs. With 13 operators offering services to 863 million connections in the world’s second-most populous nation, price wars forced voice rates down to as low as 0.5 rupee (0.9 cent) from as high as 16 rupees in 1995.

Vodafone Licenses

Vodafone Group Plc (VOD) last month said its application to renew licenses for second-generation wireless services in key Indian cities was rejected by the Department of Telecommunications. The carrier’s Indian unit filed a petition in February challenging the telecommunications department’s decision to re-auction the licenses, which expire in 2014.

Vodafone, the world’s second-largest mobile-phone service provider, is also waiting to resolve a $2.2 billion dispute with Indian tax authorities over the 2007 acquisition of Hutchison Whampoa Ltd.’s Indian business.

“Initially, the drop in Indian investment happened because of the 3G auction expenditure when a lull was expected,” said PricewaterhouseCoopers’s Chowdhury, referring to the $19.5 billion that 11 companies bid in 2010 for airwaves to offer high-speed third-generation mobile-phone services and wireless Internet connectivity. “But since then, that lull has sustained, mainly due to diminishing investor confidence because of cases like these.”

To contact the reporter on this story: Kartikay Mehrotra in New Delhi at kmehrotra2@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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