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'When foreign investments become political issues then nobody will come to invest'

B360 January 31, 2024, 12:56 pm
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Gandhi Pandit

Founding Partner, Gandhi and Associates

Axiata Group Berhad which had a controlling share in Ncell through Reynolds Holdings, a holding company registered in Saint Kitts and Nevis, offloaded its share from the holding company recently. This is the second time that the parent company has sold 100% stake in the holding company – first in 2016 by TeliaSonera to Malaysian Axiata Group Berhad, and the second time, in 2023, to the UK-based Spectrolite UK Ltd. 

Following the offshore transaction of a holding company that has 80% stake in Ncell, there has been a furor in the government and among the public with several opposing views questioning the process, the legalities and what could be the message to foreign investors. Against this backdrop, the government has formed a panel to study the recent transactions and possibilities of tax evasion. 

Business 360 caught up with Gandhi Pandit, Founding Partner of Gandhi and Associates, to learn from a legal point of view what this transaction means and what are the possible implications for Nepal in the FDI context. Excerpts:

Axiata Group Berhad recently offloaded its stake from Reynolds Holdings, which has 80% shares in Ncell. What could be the major impacts of this deal? 

This deal has brought about some confusion in Nepal which has been caused by widespread misinformation and disinformation. People were mindful of transactions made between TeliaSonera and Axiata Group Berhad in 2016. Back in 2016, the Swedish telecommunication multinational, TeliaSonera, had sold its 100% stake of Reynolds Holdings – a holding company registered in Saint Kitts and Nevis (a tax haven in the Caribbean Islands) that held 80% shares in Ncell. At the time, Reynolds Holdings was sold at $1.365 billion (Rs 143 billion) and the intention of offshore transaction was to evade capital gains tax (CGT). In the recent deal, Axiata Group Berhad has sold cent percent stake of Reynolds Holdings at $500 million (Rs 6.65 billion) to Spectrolite UK Ltd, which shows there is no capital gain for the seller. In this context, the implicit intention of offloading the share of Reynolds Holdings is not concerned with the issue of evading tax. I do foresee that the intention of this deal could be to prevent the government from taking ownership of Ncell (including infrastructure) after six years after the expiry of the licence period.

As per the deal, Ncell is now owned by Spectrolite UK Ltd – owner of Reynolds Holdings and Sunivera Capital Ventures; what does this deal mean for Ncell? 

We should understand the shareholding structure of Ncell first. Ncell is a Nepali telecommunication company, the controlling 80% of its stake is owned by Reynolds Holdings. The foreign investor company or parent company initially established a holding company – Reynolds Holdings – in Saint Kitts and Nevis that purchased 80% stake of Ncell instead of directly investing in Ncell through a parent company. Reynolds Holdings has not sold its shares from Ncell, however, the holding company itself is reportedly sold to another owner, Spectrolite UK Ltd. Another 20% stake of Ncell is taken by Sunivera Capital Ventures, a company registered in Nepal. In this aspect, there is no change in the ownership structure of Ncell inside Nepal. If Reynolds Holdings has to sell/offload its share from Ncell, it must take permission from Nepal Telecommunications Authority (NTA) – the telecommunication sector regulator, Department of Industry and the Office of the Company Registrar. However, it doesn’t require to comply with Nepali law for the share transaction of the holding company. They are complying with the law of Saint Kitts and Nevis. The sale of the shell company – Reynolds Holdings – means the controlling authority has been transferred to Spectrolite UK Ltd. Further, in the transaction of shares of Reynolds Holdings, the purchaser, Spectrolite UK Ltd, has said that it has taken responsibility for settling any of the liability including taxes. This is why there is no issue with Ncell itself. 

If they don’t have to comply with Nepali laws in the offshore transaction of a holding company, then how did the Government of Nepal recover capital gains tax from the holding company’s share transaction in 2016? 

In some areas Nepali laws have extended jurisdiction, for example in capital gains tax (CGT). Even though the transaction was made outside the country it impacted/affected the value of Ncell. That is why, even though transaction took place outside the country, CGT had to be paid in Nepal. And that is not an issue today because both the seller and buyer have agreed that CGT will be taken care of by the buyer. 

Then why has the government formed a panel to ascertain if there are any tax evasion issues? 

The panel will not come up with anything new. They might look into whether shares of Ncell have been sold or not. In this respect, the statement issued by the Office of the Company Registrar states that no transactions have taken place in their record. So, what investigation is the panel going to do? Regarding CGT, if you are selling the property or share below the previous purchase price, you don’t have to pay CGT. In my understanding, the licence period of Ncell is only six years. 

In the next six years, the purchasing company can’t make $1.365 billion as there has been a slump in the business of telecom companies due to massive use of VoIP applications like Messenger, Viber and WhatsApp, among others, and this tempted the owner, Axiata Group Berhad, to sell its stake in Reynolds Holdings, which has 80% shares in Ncell, at a substantively lower rate. 

Why do parent companies not invest in Nepal? 

There are some weaknesses in our laws. Foreign Investment and Technology Transfer Act, Article 20 allows any foreign company to make investments in Nepal provided that they get approval from the Department of Industry. FITTA doesn’t make any distinction between offshore company and parent company. Parent companies are the real investors who inject capital and technology. The weaknesses in the law provides room for the parent companies to invest through holding companies established in tax havens like Reynolds Holdings to invest in Ncell. Investors from the USA, UK and European countries normally do not invest in developing and underdeveloped countries directly. They normally establish shell companies in tax havens like the Bahamas, Saint Kitts and Nevis, and Panama, among others and invest in different countries through the offshore company. It is because the laws are very liberal in those tax havens. 

Parent companies in the developed countries are highly regulated in their own countries and they have to follow strict compliances. If the parent companies directly go to developing countries for investment, a lot of liabilities arise if something goes wrong there. The liability might be unlimited in many ways like breaching environmental laws of any kind. In order to avoid that kind of situation and minimise risks they establish shell companies. 


The parliamentary committees namely, Public Accounts Committee and Finance Committee, were not informed by the parent company regarding the purchase of the holding company. What are your observations on it? 

They might have been dragged into it due to the difficulty faced by Nepal to recover CGT from previous transactions. Second, if any telecommunication service provider holding a licence is a foreign investor and its holding ratio of share is 51% and above at the time of expiry of licence then the property of that service provider will automatically come under the ownership of the government of Nepal after expiry of the licence.

If Reynolds Holdings holds the existing 81% share for next six years (licence expiry period), the government of Nepal will take over the property of Ncell. And if Reynolds Holdings offloads its majority/controlling share to a Nepali company before the expiry of the licence then the government cannot take over the property of Ncell. Parliamentary committees have been looking into these two issues on whether Reynolds Holdings offloaded the share and evaded tax. 

What if the parliament passes a new law to prevent the transfer of share to Nepali companies at the time of licence expiry? 

If the parliament brings in the new law, that can be enforced only for transactions made after the enforcement of the law. We cannot judge on the basis of retrospective laws. Likewise, FITTA has a provision that the country will not introduce any law that will affect foreign investments. The law has provisions of non-discrimination between domestic and foreign investment and non-nationalisation of investment. If the parliament brings such a law, it will dampen the investment climate. We are promoting foreign investment, so we cannot be offensive towards foreign investors investing in the country. 

Axiata Group Berhad while exiting from Reynolds Holdings, which holds 80% stake in Ncell, blamed the deteriorating investment climate in Nepal due to political instability and slowdown in economy. Do you think the comments are valid? 

These are false allegations. The company has made a huge profit in Nepal. I strongly feel that the government should condemn this statement. They were happy with the profit generated in Nepal, but when it comes to taxes and offloading their investment, they cannot blame the country in such a way. I am not saying that we are perfect in terms of creating conducive investment climate; we have issues to deal with but these are our internal issues. A foreign investor exiting from Nepal cannot make such harsh remarks. This is against their ethics. 

Is it unusual to see politicians, parliamentarians and campaigners (of political patronage) interfering with the share transaction issue of Reynolds Holdings?  

Instead of the government dealing with this issue legally, different actors are trying to deal with this issue politically. There is already an authority to deal with the issue. Even Nepal Telecommunications Authority is trying to find out what actually happened; the issue was already discussed in the domain of the parliamentary panel. The parliament has the right to investigate but without waiting for how the authorities are dealing with it, the parliamentary panels are proactively meddling in the issue. The parliamentary panels may not have any ill intention, but, prima facie, it spreads the message that Nepal is dealing with foreign investment politically. As a constitutional body, the parliament should watch and investigate issues cautiously. They cannot act like politically motivated/persuaded entities. 

Nepal’s parliament cannot bar parent companies from offloading their share from holding companies. If we are pursuing foreign investment, we should not deal with them politically or through other means. We should deal according to the law and by the concerned authorities. We should strengthen and make our institutions effective and efficient for it. When foreign investments become political issues then nobody will come to invest. 

Though Spectrolite UK Ltd – which owns 100% stake of Reynolds Holdings that holds 80% stake of Ncell – and its Nepali partner Sunivera Capital Venture, which owns 20% stake, are separate legal entities, they belong to members of the same family. In this regard, can we say that Satish Lal Acharya and family are the owners of Ncell? 
Prima facie people may explain it that way. After purchasing Reynolds Holdings, Satish Lal Acharya, owner of Spectrolite UK Ltd, holds 80% share in Ncell and his wife Bhavana Singh Shrestha, who owns Sunivera Capital Venture, holds the remaining 20% stake. Even though they are members of the same family, from the legal perspective, the companies they run are separate legal entities. Spectrolite UK Ltd does not hold Ncell’s share directly. 

Do you think it would be easy for Spectrolite UK Ltd to sell a majority stake of the holding company to Nepali nationals/companies? 

In my understanding, they might offload shares of the holding company to Nepali companies to prevent the government from taking Ncell’s property after the expiry of their licence as per the existing legal provision.

The government is hosting the Nepal Investment Summit this year and has announced it will amend laws and regulations, and ease the procedures for foreign investment. What are your suggestions to the government to take into consideration during the summit in the wake of Axiata Group Berhad’s allegations? 

First, the government should be clear on why it is hosting the summit. Will the government be able to confidently answer all the questions raised by potential foreign investors; this will be the benchmark for Nepal on whether it will be able to pursue foreign investment or not. 

There are rumours outside Nepal that making investment in Nepal is easy, but the exit policy is very difficult. The obstacle in profit repatriation of foreign investment companies should be eased out. Further, large scale investments are not coming, even if they want to come, as the environment is not conducive for that. 

We are not following the project financing law that allows non-recourse financing. In non-recourse financing, if the company makes a profit, they will pay the lender and if the company goes away from the business, the lender can’t go to their shareholders to recover the money. In big projects, if you make shareholders liable then nobody will invest. That is why we should introduce the sophisticated project financing law. 

Further, we have some weaknesses in FITTA that recognise foreign investment as equity investment and not debt. Debt can be brought but they don’t get equal protection like equity holders enjoy. In order to develop bigger projects, there must be a reasonable debt-equity ratio. If you are not providing protection to the lender then why will they come? Neighbouring India and China have sophisticated project financing laws in place. Along with project financing law, the government should also pay attention to country rating (sovereign credit rating), and amending tax and labour laws to pursue foreign investment. In addition, the issues of hedging and viability gap funding (VGF) being raised by private investors for a long time should be duly addressed by the government. 

Nepal is a proper country to make investments in various areas but we have to make our legal regime more prudent in this regard to pursue more foreign investment. 

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MARCH 2024

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