At a time when the focus should be on rolling out mobile operations, Datacom Solutions, one of the companies awarded a telecom licence in 2007, finds itself embroiled in a promoter-related struggle that could head for the courtrooms if not resolved quickly.
Originally, Datacom was promoted by Himachal Futuristic Communications Limited’s (HFCL) managing director, Mahendra Nahata. Faced with financial constraints, he took on board the Videocon Group in a joint venture (JV) by selling 64 per cent of his stake to it. However, the remaining 36 per cent equity in Datacom was retained by Nahata.
The partnership has since soured, with Nahata alleging that V.N. Dhoot, chairman of the Videocon Group and his alliance partner, has reneged on his commitments. According to Nahata, Dhoot is trying to run the JV proprietorially without giving him due weightage as a partner.
The dispute started when Jumbo Techno Services, a company backed by HFCL, raised concerns over the corporate governance of the JV. Later, financial implications also came up. Nahata claims that, as per the agreement signed between the two companies, he could sell his 36 per cent stake in Datacom for Rs 21 billion and Rs 4.5-5 billion as compensation for not merging HFCL Infotel’s telecom operations in Punjab with Datacom. However, Videocon has offered only $324 million, to be paid over a period of 18 months, for this stake. This is unacceptable to Nahata. Alternatively, Nahata has made a counteroffer to Dhoot, indicating his willingness to buy out Videocon’s stake, though at the original price, not at a premium.
With the dispute getting messier by the day, the corporate battle between the two is now spilling over to lenders, regulators and potential foreign investors. In the latest turn of events, Nahata has reportedly sent a communication to the State Bank of India and Datacom’s auditors alleging that the Videocon Group has passed off a Rs 10 billion loan from the bank as its own contribution to Datacom’s equity, which, according to him, is a violation of banking and company law norms. Nahata has also hinted at several other financial irregularities. “Instead of keeping their promise of bringing equity capital of $901 million into Datacom as part of their 64 per cent stake, the Dhoots are trying to bring in their investment commitment in the form of a loan and later recover the money by selling their stake to foreign players,” says a senior official at HFCL.
Videocon, on its part, maintains that the impasse has come about because Nahata insisted on a $901 million equity investment by Datacom by way of preference shares at a premium of Rs 1,490 per share. It was this stance that stopped the shareholders’ agreement from being completed. According to Videocon, in the entire investment agreement, there has been no mention of $901 million worth of equity investment. Therefore, according to Videocon, it would be “grossly incorrect” to say that the company failed to meet its investment commitment.
Meanwhile, this fight is impacting potential investments in Datacom. As a major setback to Datacom, Saudi Arabiabased telecom major Etisalat has lost interest in buying stake in the company and has turned towards Swan Telecom, another new telecom player. Some foreign investors are also learnt to have set a precondition that both the warring partners exit the company before they can invest in it.
In fact, industry sources say that the stand-off between the two promoters could delay Datacom’s plans of becoming the first player among the new entrants to launch mobile services. However, according to Datacom’s CEO Ravi Sharma, “The issue is between the shareholders and will not impact the working of the company. We will continue to proceed according to our plans, while the Videocon Group will arrange the finances for the operations.”
Indeed, aiming to get a foothold in the fastest growing telecom market in the world, at least three global telecom majors ?? Turkish telecom operator Turkcell, an unnamed European telecom company and Mexican industrialist Carlos Slim Hel?promoted America Movil ?? are vying to buy up to 51 per cent stake in Datacom. A quick resolution of differences will help the company move ahead.
