According to a press report, the relevant government bodies have expressed their intention to resolve the ongoing dispute with Grameenphone (GP) on the contingent liability claim (BDT126bn) through discussions. The government also declared to withdraw the earlier show-cause notice to cancel GP’s license, as a gesture of goodwill. At the same time, GP is also expected to withdraw its cases against the Bangladesh Telecommunication Regulatory Commission (BTRC), seeking permanent injunctions against the contingent liability claim.
A solution appears in sight
This surprisingly positive development happened after the Minister of Finance intervened and called in a meeting with the Minister of Post and Telecommunication, the Chairman of the National Board of Revenue (NRB), and CEO of GP. The meeting ended with a positive note to find a solution in the next three weeks. Further discussions will be required to decide the possible approach for dispute resolution and determine the settlement figure for the contingent liability claim.
We think that the regulatory bodies initiated the discussion as they understood that the legal procedure would only prolong the dispute. Moreover, investors in Bangladesh and abroad had been criticising the regulator's rigid stance, which we think played a role.
At this point, we think both BTRC and NRB will start mutual discussions with GP, and therefore we now feel more confident that the dispute will be resolved.
Impact of the contingent liability claim is already priced, Buy
Our target price for Grameenphone is BDT438.8, suggesting an ETR of 46.8%. 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 27.4% return. Therefore, we think the impact of the contingent liability claim is already priced in and reiterate our Buy recommendation.
A timeline of the dispute
- May 2011: BTRC appoints an auditor to examine GP’s outstanding amount to the government in unpaid revenue and tax. BTRC claims BDT30.34bn in the first audit.
- August 2011: Writ petition filed against BTRC’s appointment of the audit firms; appointment of the auditor declared illegal.
- January 2013 - August 2016: Dispute continued about the appointment of the auditor. Finally BTRC appointed Toha Khan Zaman (partnered with CNK & Associates LLP in India) on 6 October, 2015 to audit GP. The audit began in July-August of 2016.
- 11 December 2017: The auditor shared a summary of draft report for GP’s feedback.
- 18 January 2018: GP provided feedback regarding the summary, clarifying its position.
- 3 May 2018: Audit firms submitted their summary with a claim of BDT115bn.
- September 2018: GP provided its feedback and asks BTRC to reconsider the claim.
- 3 April 2019: BTRC sent a demand note to GP claiming BDT126bn.
- 9 July 2019: BTRC restricted internet bandwidth capacity by 30%
- 18 July 2019: BTRC withdrew bandwidth restriction
- 5 September 2019: BTRC sent license cancellation notice; Grameenphone seeks legal recourse.
- 18 September 2019: License cancellation notice to be withdrawn as the government calls for negotiation.