According to a press report, the government has proposed forming a neutral committee of telecom experts to evaluate the Bangladesh Telecommunication Regulatory Commission’s (BTRC) audit claim. The proposal was made in a meeting attended by the finance minister, the telecoms minister, the BTRC chairman, the National Board of Revenue (NBR) chairman, and senior officials from Grameenphone (GP) and Robi.
As per the proposal, Grameenphone and Robi will approve the committee members. The committee will define the methodology to determine BTRC’s claim and their opinion will be final on this issue. Before the committee starts, the BTRC will withdraw the show-cause notice for license cancellation and the telecom operators will withdraw the cases. However, the telecom operators will have to deposit a certain amount before the committee becomes functional. The report did not mention any particular amount for the deposit. During a previous dispute with NBR, we observed that GP paid 10% of the claim as recoverable deposit. Therefore, we think the deposit amount may not exceed ten percent of the contingent liability, ie USD150mn (BDT9/share). We maintain our current 2019f earnings and dividend forecast pending further information.
Overall, we consider this proposal as a very positive development in the scenario as the Finance Minister continues following up on the dispute resolution. It makes us more confident to believe that the claim will be resolved. Our TP for GP stands at BDT438.8 with an ETR of 34.8%. Our TP already includes c36% payment for the contingent liability (BDT33/share). Even if we consider the total payment of contingent liability (BDT93/share), the fair value of GP would stand at BDT379/share, offering 17.0% return. Therefore, we think the impact of the contingent liability claim is already priced in and reiterate our Buy recommendation.