Flash Report /
Bangladesh

Grameenphone: Court issues injunction on regulator's claim

    Tanay Kumar Roy
    Tanay Kumar Roy

    Research Analyst

    IDLC Securities
    20 October 2019
    Published by

    According to a press report, a High Court issued an injunction on the Bangladesh Telecommunication Regulatory Commission’s (BTRC) audit claim (BDT126bn) on Grameenphone (GP) for two months and will review GP’s appeal on 5 November, 2019. The telco got the stay order soon after the BTRC expressed its intention to appoint administrators in GP, mentioned in an earlier report

    A twist in the dispute resolution process

    The second negotiation meeting between GP and the regulators, held on the 9 October in the presence of the Finance Minister, concluded with a note to form an independent audit committee to reassess the regulators claim. Meanwhile, GP and BTRC were supposed to halt their legal battles by withdrawing their court appeal and show-cause notice, respectively. However, the bureaucratic complications continued and both held their previous ground. Since the BTRC did not withdraw its show-cause notice for license cancellation, GP had to respond to it in due time. According to the BTRC, the response from GP was unsatisfactory and hence, it sought approval from the Telecom Ministry for the appointment of four administrators. 

    As per the Telecom Act, the regulator can appoint administrators if the license of an operator is suspended. In such a case, the business operation is supposed to continue under the supervision of the administrators for a specific period of time. After the suspension is over, the administrators will hand over the responsibility to the management.

    Appointment of administrators seems less likely

    First, these chain of events are quite contrary to the Finance Minister’s negotiation efforts earlier, but we think that the chances of appointing administrators are still low, especially when the court has issued a stay order. Second, we believe the regulator will reconsider the possible aftermath of overtaking a business, since it would adversely impact potential foreign investment in the country. Third, we may also see the Norwegian government, an investor in GP, to step in and lobby against the appointment of administrators. 

    Despite recent complexity in the dispute resolution process, we do not rule out further possibility of negotiation, continued by the Finance Minister or higher authority in the government since the dispute has gained much traction. In a worse-case scenario, should there be an absence of any negotiation process, we would expect prolonged legal disputes between GP and the regulator. 

    We maintain our Buy recommendation 

    Our TP for GP stands at BDT438.8 with an ETR of 42.0%. 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 23.2% return. Therefore, we think the impact of the contingent liability claim is already priced in.