Axiata may find breaking up hard to do

Malaysian conglomerate likely to be tied down in court battle with Nepal government over its stake sale in Ncell

A demonstrator demanding the nationalisation of Ncell in Kathmandu on Tuesday. Malaysian conglomerate Axiata announced sudden exit from Nepal this week after selling its stake in the telecommunication service provider. Photos: SUMAN NEPALI

Malaysian conglomerate Axiata surprised everyone on 1 December when it suddenly announced its exit from Nepal after selling its stake in the telecommunication service provider Ncell. But breaking up may be hard to do. 

The company said that it had entered into a Share Purchase Agreement (SPA) with UK-based Spectrlite UK Limited for the sale of the St Kitts and Nevis-registered Reynolds Holdings Limited, which owns about 80% equity stake in Ncell.

The group said in its statement its decision to withdraw from Nepal was ‘based on a thorough evaluation of the prevailing business environment in Nepal, which led to the conclusion that continuing operations under the current conditions of unfair taxation and regulatory uncertainties was no longer sustainable for Axiata.’

Axita’s last quarterly report stated that a meeting of its board of directors had decided to sell its shares in Ncell on 29 September. Axiata acquired Reynolds from the Swedish company TeliaSonera for $1.365 billion in 2016. In contrast, the group’s terms of the SPA with Spectrlite UK include a fixed consideration of $50 million— the amount that Axiata will receive from the sale. 

This sounds fishy to Nepali regulators and government authorities who suspect that Axiata’s exit from Nepal could be an attempt by the group to evade taxes. Nepal Telecommunications Authority (NTA) has said that it was not notified as per rules of Axiata’s sale of Ncell, and has sent a letter to Axiata saying the company should have got approval first. Nepal’s telecommunications regulation stipulates that the NTA must approve the sale and purchase of more than 5% of the paid-up capital of a business.

Ncell’s acquisition became disputed in 2016 because the agreement between the selling and purchasing parties had occurred outside Nepal, which meant that the Nepal government had not been paid the capital gains tax from the profits of the sale. 

Ncell was subsequently levied Rs62.65 billion in capital gains tax by the Nepal government, which Axiata challenged in the Supreme Court. After the court ruled in the government’s favour in February 2019, the conglomerate took the case to the International Centre for Settlement of Investment Disputes (ICSID) in May of the same year. The international arbitration institution also ruled in Nepal government’s favour in June 2023. 

As it stands, the sale and purchase agreement has come under scrutiny not only because of Axiata’s non-compliance with legal procedures, but also because of the murkiness of the purchasing company, Spectrlite UK which was registered in the UK by a Singapore-based Nepali-origin businessman Satish Lal Acharya only two months ago, with records showing its paid up capital as just $1. 

Sunivera Capital Ventures, which owns the remaining 20% shares of Ncell, is also owned by Acharya. The businessman therefore now has complete ownership of the service provider. 


Despite having sold Ncell’s shares for $50 million, Axiata’s agreement with Spectrlite also includes a conditional consideration, per which Axiata will receive a share of ‘distributions contingent upon the future business performance and net distributions declared by Ncell until 2029, and any windfall gains secured by the Purchaser (Spectrlite UK) during this period’, read the group’s statement. 

This means Axiata will continue to receive a share of Ncell's income until 2029 — getting 80% of its profits in 2023, 40% in 2024 and 2025, 30% in 2026 and 2027, as well as 20% in 2028 and 2029.

This is not the first tax dispute in Nepal involving Axiata. The Large Taxpayer Office in Kathmandu had levied the company an additional Rs60 billion tax upon change of ownership. Section 57 of the Income Tax Act states that if the ownership of any entity changes by 50% or more as compared to its ownership until before the last three years, the entity shall be deemed to have disposed of the property under its ownership or the liability borne by it.

The ICSID ruled that Axiata has discharged its tax liability after paying the capital gains tax to the government, but the case is still pending in Nepal’s Supreme Court.

Moreover, Axiata is also said to have been unhappy with expensive fees for the renewal of its mobile telecommunication license. NTA charges Rs20.1 billion for licence renewal, and it is valid for 10 years. But Ncell’s 25-year license operational period (as mero Mobile) coming to an end within the next six years in August 2029. 

Section 33 of the Telecommunications Act also stipulates ownership of land, building, plant, equipment and other structures related to the telecommunications service developed with more than 50% of its investment by a foreign person or corporate body shall shift to the government after the licence expires.

It is assumed that Axiata sold its shares in Ncell to avoid those risks. If Satish Lal Acharya, a businessman of Nepali origin, has majority ownership of Ncell, the license can be renewed, however Acharya is a Singapore resident and it is unclear whether or not he has renounced his Nepali citizenship. 

With the change in ownership, Ncell’s liabilities have also shifted to Acharya. Last year, Ncell received a credit rating from ICRA Nepal to obtain loans exceeding Rs28 billion. Axiata and the Nepal government could be entering a long and complicated legal battle over Ncell’s sale, purchase and sale of ownership.

NTA Chair Purushottam Khanal has said that he will seek clarification from Axiata. Officials at the Internal Revenue Office also say that it will be difficult for Axiata to avoid paying taxes. 

The Public Account Committee of Nepal’s Parliament on Monday sent letters to the Internal Revenue Department, the Office of the Company Registrar and the NTA seeking information on the purchase and sale of Ncell. 

Chair Rishikesh Pokhrel of the Committee, said the body has sought clarification as to the legality and the financial effects of the transaction.

The Patan High Court after an initial hearing last week following Axiata’s announcement issued an order asking the company to present its reasons for the sale of shares. The High Court has scheduled the next hearing for 11 December.