KUALA LUMPUR (June 12): Axiata Group Bhd said it will book a RM376.6 million write-off of related receivable assets, after an arbitration tribunal dismissed its claims over a capital gains tax imposed by the Nepalese government on its Nepal-based telecommunications operator Ncell Pte Ltd.

The Bilateral Investment Treaty arbitration tribunal at the International Centre for Settlement of Investment Disputes (ICSID) had on June 9 dismissed claims by Axiata Investments (UK) Ltd and Ncell, Axiata said in a filing on Monday (June 12).

The arbitration is in relation to a capital gains tax that the telco was ordered to pay to the Nepalese government following Axiata UK’s 2016 acquisition of the entire stake in Reynolds Holdings Ltd, which holds an indirect 80% shareholding in Ncell, for US$1.365 billion (RM5.91 billion at the time).

Eyebrows were raised then as the Nepalese government imposed the capital gains tax on the purchase of the asset, rather than the vendor.

Axiata UK bought the stake from TeliaSonera Norway Nepal Holdings AS.

In total, Ncell had paid a sum equivalent to RM1.56 billion in the alleged outstanding capital gains tax. This comprised deposits equivalent to RM781.7 million in 2016 and 2017, and another payment for an alleged outstanding amount plus interest equivalent to RM779.2 million in April 2020. Both payments were made under protest, Axiata’s annual report said.

Following the ICSID award, Axiata said it will book the write-off in its comprehensive income statement. It will “assess any other financial impact including further asset impairment” following the award, although it said no cash flow impact is expected.

“The award may have material impact on Axiata Group’s consolidated net assets per share and the earnings per share for the financial year ending Dec 31, 2023,” it said.

The decision is “unfavourable, but on a bright side provides a closure” for the episode that has spanned seven years for the telco operator, said Rakuten Trade head of equity sales Vincent Lau when contacted.

Lau opined that Axiata should be able to stomach the adjustments. “I do not think there will be more adjustments from the episode,” he added.

The projected write-off of RM376.6 million is slightly higher compared with 11 billion Nepalese rupees of adjustment guided by Axiata in its 2022 annual report, should the arbitration outcome turn unfavourable.

Rough calculations showed the impairment amounts to 4.1 sen per share, compared with Axiata’s net tangible asset of RM2.61 per share as at end-March.

Shares of the Malaysia-listed telco group fell 4.32% or 12 sen to a six-month low following the announcement, before paring its losses to close at RM2.67 — still down 11 sen or 3.96% — to be the fourth biggest loser on Bursa Malaysia on Monday.

“The market was not expecting the company to win the arbitration,” a fund manager said. “But the surprise comes from the fact that the amount was still parked in the receivables in the first place.

“Of course, those who have the view (that the outcome may not be favourable) and have read the annual report cover to cover would have incorporated this into its fair value,” he added.

The situation highlights the risk faced by companies when doing business abroad, said the fund manager — a view that Rakuten’s Lau concurs with.

“It is tricky to sue the government, when you need spectrum to operate,” an industry observer said when contacted.

Ncell, the largest mobile network operator in Nepal, contributed over 5% of Axiata’s revenue and earnings before interest, taxation, depreciation and amortisation in the financial year ended Dec 31, 2022.

Recall that the Nepalese government had previously obtained a Supreme Court order to have Ncell pay the capital gains tax after the acquisition, following which Axiata secured provisional orders from the arbitration tribunal to prevent the Nepalese authorities from demanding the tax payment.

Despite the provisional orders, the Large Taxpayer Office of Nepal issued demand letters to Ncell, prompting Ncell to make the April 2020 payment.

Together with the latest tribunal decision, the Nepalese government was ordered to pay Axiata UK a sum of approximately US$1.4 million (RM6.5 million) and to reimburse Ncell for the cost of a loan taken out by Ncell, arising from Nepal’s non-adherence to tribunal orders during the early stage of the process, Axiata said in a separate statement.

“Axiata respects the decision of the tribunal and is consulting its legal advisors in relation to the award. Further announcements will be made upon material developments arising from the matter,” it added.

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Axiata retreats to six-month low on dismissal of Ncell's claims in tax dispute with Nepalese govt