Telenor Defends Stake In Grameen Phone

Telenor has reiterated its stand on controlling Grameenphone (GP) as a majority shareholder, saying the majority stake should remain in its hands because of its higher financial contribution to the largest cellphone operator in Bangladesh.
"It's not a problematic issue. We had discussions with Dr Muhammad Yunus in Oslo last month. And what I found in the discussions is that we are in a long-term relation for developing the country," said Telenor Chairman Harald Norvik in an exclusive interview with The Daily Star on Monday.

Norvik made the comments on the first day of a three-member high-profile Telenor team's visit to Dhaka.

Jon Fredrik Baksaas, chief executive officer of the company, explained why Telenor should not reduce its shares in Grameenphone.

The battle between Yunus' Grameen Telecom and Telenor intensified surrounding a clause in the deal between them. "It is Telenor's intention to reduce its shareholding to below 35 percent within a period of six years of incorporation (1997) of the company," the clause says.

But even after more than 10 years, Telenor is yet to reduce its control in Grameenphone. Recently Dr Yunus threatened to sue Telenor.

Asked about Nobel laureate Yunus' view on taking majority share of Grameenphone, Baksaas said there might be different perspectives on how to view that deal and Telenor intention. "But you have to look back on the company's history."

Baksaas said, "We see this very clear in the sense that Grameenphone was refinanced in the period 2003 to 2004. In that period when this refinancing was made we contributed, from Telenor perspective, very much to getting the company through that period and with the additional financing in hand with a projection that Telenor should remain the major shareholder by holding more than 51 percent share."

He said it was a combination of equity investment and loans to the company. "I think the financing side has been incredibly important ... (and) dividend payout from the company has been minimal," he added.

But what was the necessity to make an intention to reduce Telenor's shares? Why does Telenor now refuse to execute its intention?

Baksaas explained, "Grameenphone was our very first investment in Asia and the paragraph of intention, which describes the possibility that Telenor has the choice to reduce its holding down to 35 percent, was something that the board of Telenor at that time needed because of risk profile of the project at that time."

"But when we get new knowledge about the Bangladeshi market six years later and we participate in refinancing and creating additional financing for Grameenphone then of course we subscribe to the pact that Telenor should remain 51 percent shareholder in Grameenphone on project basis as well as refinancing. That is the story telling around intention paragraph as part of the shareholder agreement," he said.

The cumulative investment in Grameenphone up to July 2008 was $1.7 billion and the total dividend paid to shareholders by the end of 2007 was $142 million.

Until 2003, there were four shareholders in Grameenphone. Telenor owned 51 percent, Grameen Telecom 35 percent, Marubeni Corporation 9.5 percent and Gonofone owned 4.5 percent.

When Marubeni Corporation wanted to sell its shares in 2004, as per the incorporation deal, its shares were proportionately transferred to the other three stakeholders. Later Gonofone also wanted to sell its stake and Telenor bought it. Telenor claimed that Gonofone transferred its 6.5 percent shares to Telenor in line with Grameenphone's Board approval.

But Grameen Telecom alleged that Gonofone secretly sold shares to Telenor. When asked about the issue, Baksaas said, "I don't subscribe to this view."

He said, "Grameen Telecom did not take part in buying of Gonofone's shares although it had opportunity."

However, Telenor high-ups believe the shareholder dispute is less significant than the company's future prospect.

"The prospect of the company is very important in particular when we together do the IPO (initial public offering)," Baksaas said.

Grameenphone had a plan to raise $300 million -- half through a private placement and half through a subsequent domestic IPO. But in the latest development, its high officials indicated to cut its planned $300 million IPO to $125 million.

"From Telenor, we feel very positive about bringing Grameenphone to the local stock market," Baksaas said, but declined to tell about the exact date of listing. "The timing has been a bit hit by the international credit crisis and this is also under evaluation. So our intention is to carry out the IPO issue when the market allows it."

Commenting on illegal VoIP (Voice over Internet Protocol) issue, Telenor Chairman Norvik said, "The fine in connection to VoIP cases with Grameenphone is of course regrettable in our organisation. Our attitude is always going to be according to local laws within local framework."

In the six-operator market, Grameenphone still holds the leading position in Bangladesh with 20.84 million customers. The operator is now opting for third generation (3G) technology.

"We are looking forward to the 3G market knowing that 3G offers more services and build sort of new experience as that the market demands," Baksaas said.

3G technology is better for using internet than 2G or WiMax, he said, adding that the operators should also bring affordable technology.

About the recent bidding for WiMax licence in Bangladesh, he said the auction should not be so aggressive as it involves huge investment and affordability.

The auctions that happened in Europe between 1999 and 2000 basically slowed telecom investment, Baksaas referred.

He said telecom policies and tax structure should not be changed frequently as these hinder growth.