Business

Thursday November 5, 2009

Telenor will not cash out DiGi to fund India

By RISEN JAYASEELAN


KUALA LUMPUR: Telenor ASA will not divest its Asian assets, such as DiGi.Com Bhd, to fund its massive expansion into India, said Telenor Asia president Sigve Brekke.

“We are comfortable with using the cashflow from Telenor AG plus debt to fund our Indian operations. We are absolutely not thinking of selling (any assets in Asia). We are committed to the long term in this business,” he told StarBiz.

Oslo-listed Telenor is forking out around US$2bil (RM6.85bil) in a greenfield operation that will cover most of India.

In comparison, Telenor’s 49% stake is DiGi is worth RM8.3bil.

Telenor, which in April bought a controlling stake in Unitech Wireless, a family-owned Indian company that owned a licence for mobile services, had initially planned to fund the venture through a rights issue.

It changed its mind after shareholder feedback and decided instead to forgo dividend payments for its 2008 and 2009 financial years.

Telenor plans to resume paying dividends in 2010.

Telenor has also managed to bring down its average cost of entry into the Indian market.

“We managed to negotiate a deal with Unitech to acquire a higher shareholding of 67.25%, against the initial agreement for 60%, by paying the original price,” Brekke said when asked to comment on reports that Telenor had effectively brought its total entry cost down by about 10%.

“We think we have got a reasonable price,” he added.

Telenor plans to raise its stake in Unitech Wireless to 74%, the maximum allowed under Indian regulation.

Despite the tough market conditions, Unitech wireless will have a low cost advantage over other players as it plans to outsource all major services, from leasing of towers to IT services, according to Brekke.

“We will not build a single tower,” he said, noting that there was an oversupply of tower operators there. “We hope to be the cost leader in the Indian market,” he added.

Brekke sees a lot of scope for growth in the Indian market due its low penetration levels and the fact that market leader, Bharti Airtel, only commands a 25% market share.

Still, industry players familiar with the Indian scene say that pricing pressures and the strength of existing players make its virtually impossible to make a business case for venturing into the Indian mobile market today.

Furthermore, most Indian mobile operators are already operating on a low cost, which has enabled them to survive in the aggressive price wars, analysts said.

Brekke said their experience in building up mobile businesses in Malaysia, Thailand, Pakistan and Bangladesh would help them succeed in India. “If we did not build these businesses we would not be venturing into India.”

When asked if he sometimes wakes up thinking that venturing into India was a mistake, Brekke said: “I don’t. But I do sometimes wake up being nervous about India.”

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