Grameenphone (GP) paid the second and final installment of BDT10bn (USD117.6mn) to the Bangladesh Telecommunication Regulatory Commission (BTRC), according to reports. The court demanded BDT20bn (USD235.3mn, c16% of audit claim) from GP in November 2019 when the company applied for an injunction against the non-issuance of a no-objection certificate (NOC). The regulator stopped issuing this certificate to GP to persuade them to pay the audit dispute claim.
We expect to see a fresh discussion on the audit dispute. This payment to the BTRC does not solve the audit dispute, rather it provides an opportunity to restart the negotiation process. Before the payments, the regulator seemed reluctant to start any discussion. After GP made the first payment, the regulator eased its stance and started issuing NOCs. Now that GP has made the last payment, we expect the regulator to take the initiative to review the audit dispute and resolve it. Meanwhile, GP is considering the payment not as an expense, but as a deposit adjustable with the final audit claim settlement.
Please note that there is a separate litigation on the BTRC Audit, which is pending at the lower court. The next court date is scheduled on 21 July 2020. This litigation will continue in parallel with the expected negotiation with the regulator.
BTRC to review the significant market participant (SMP) guideline. The High Court declared BTRC’s previous SMP directives illegal on 15 December 2019. The regulator then formed a new committee to review the SMP guideline. Once the committee drafts the guideline, GP will have 15 days to communicate its observation on the guideline. After assessing the observations, the regulator will complete the SMP guideline.
We expect GP to resume its usual dividend payment (expected dividend yield 11.3%). GP took a dividend cut in 2019 (c51% pay-out in 2019 vs 95%+ payout during 2015-2018) to counterbalance the BDT20bn payment to BTRC. The payment is now complete and we expect GP to resume its usual dividend payment (BDT27/share, c97% payout) in 2020.
We reiterate Buy with TP of BDT420.0 (ETR 80.0%). Our TP assumes a 36% payoff (equivalent to BDT44.6bn, USD524.1mn, BDT33.0/share) for the contingent liability claim and implies 15.1x 2020f PE (c9% 5Y earnings CAGR), 6.6x 2020f EV/EBITDA and 4.2x 2020f EV/Sales compared to 9.3x LTM PE, 3.5x LTM EV/EBITDA and 2.2x LTM EV/Sales. Even in the worst-case scenario (payment of the full audit claim), our fair-value estimate would stand at BDT360/share against the market price of BDT238.8/share, thus offering c51% return potential. Therefore, we believe that the impact of the contingent liability claim is priced in and, hence, reiterate our Buy recommendation.