Nepal Telecommunications Authority (NTA), the telcom regulator of Nepal, has recently published their expert study report on the cross holding of the telco companies in Nepal – and have asked for the suggestions, discussions and advices on the same. According to the cross holding report, all the telecommunication companies in operation in Nepal are required to go public limited company thru the medium of share distribution to the public. The same applies for the telcos that will operate in the future.
The telecommunications, being a matter of public concern, should not be operated as a sole proprietary entity bearing more than 51% share. This is to say, all private telcos in Nepal should go public limited with atleast 49% of the share – the Government of Nepal (GoN) has prepared the same, the report says quoting companies licensed for voice telephony services.
[quote style=”default” cite=”Investopedia” url=”http://www.investopedia.com/terms/c/cross-holding.asp”] Companies that have cross holdings are susceptible to confusion and management holdout in cases of company mergers and acquisitions, because one company might refuse consent to the other, and vice versa. Also, if Company A holds stocks or bonds in Company B, the value of this security might be counted twice, in error, because these securities would be counted when determining the value of the company issuing the security, and again when looking over the securities held by the other company.[/quote]
Investment status of Nepalese Telecom Market
There is a growing concern over investment and opportunities in the Nepalese telecom market. Out of 8 authorized voice telephony operators, 5 of them have 80% of foreign investment. The state owned Nepal Telecom is the only public limited company in the telecom sector now.
The investor of STM Telecom Sanchar Pvt Ltd which is STM Communication Service, Inc, One Mauchly, Irvine, California and the investor of Ncell Pvt Ltd which is Reynolds Holdings Limited, Charlestown, Nevis, West Indies are the same foreign investor company which own 80% of the individual share in these two companies in Nepal.
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NTA’s Cross Holding Study Report
Here are some of the important points that we thought are important to extract from Nepal Telco Authority’s Cross Holding Study Report, you are invited to discussion on them.
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- Telcos transacting more than 5 crore rupees should go public limited within a year. (The time frame is expected to be 5 years when the transaction of a telco hasn’t crossed 5 crore yet.)
- All new telcos should go public within 1 year of operation.
- Cross holding limitation of 15% investment in company B when company A is already invested for 80% (do note the requirement of 51% share to go public limited.)
- The business operation of telcos should be transparent to the citizens – only public companies are susceptible to this, private companies have tendency to hide or gray facts ~ NTA.
- Creation of favorable environment for mergers, concentrating on small companies.
- The cross holding NTA report respects the foreign investment of 80% in the telecom companies irrespective of whether the investor is a single entity or a group of entities. This is favoring and attracting foreign investment in the Nepalese telecom market. Hence, the telecom company can be public limited company and yet have foreign investment.
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NTA had released the guidelines and indicators for quality of service (QoS) measures for mobile operators in Nepal on December 2012. As of now, there are 8 companies, listed in the table above, licensed to operate voice telephony service in the country. NTA invites all concerned citizens and telecom expert professional to discuss their cross holding reports.
For more details, you can read the [lightbox src=”http://nta.gov.np/en/component/joomdoc/Consultation%20Paper/CP%202014/Report%20Cross%20Holding%20Study%20finalReport%202070.pdf”][button] complete cross holding study report here[/button] [/lightbox].
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