Axiata Group Berhad has entered into an unconditional sale and purchase agreement with Spectrlite UK Limited for the sale of Reynolds Holding Limited which owns approximately 80% equity stake in Ncell Axiata Limited.
The Group said the decision to withdraw from Nepal was based on a thorough evaluation of the prevailing business environment, which it said led to the conclusion that continuing operations under the current conditions of unfair taxation and regulatory uncertainties was no longer sustainable for it.
Axiata entered the Nepal market in 2016, following the acquisition of Reynolds for the purchase price of USD1.365 billion, effectively securing an 80% equity interest and controlling stake in Ncell. Between 2016 to 2020, Ncell had settled a total of NPR47.0 billion (approximately USD421.9 million or RM1.8 billion1) in capital gains tax as full and final liability under Nepalese law and received confirmation from Large Taxpayers Office of Nepal in April 2020 that no further taxes remain in relation to the acquisition of Reynolds in 2016. Despite the payment of CGT, Ncell was further assessed in January 2021 by the LTPO under Section 57 of the Income Tax Act of Nepal for a sum of approximately NPR57.9 (approximately USD433.6 million or RM2.0 billion) for the same transaction. Axiata, said, that collection on this assessment by the Tax Authorities has been suspended due to an interim order issued by the Supreme Court of Nepal based on Ncell’s petition disputing the applicability of the assessment. Capital gains tax was imposed on Ncell and Axiata after Nepal’s efforts to collect tax from the seller failed.
The international arbitration proceedings filed by Axiata to the International Centre for the Settlement of Investment Disputes were concluded on 9 June 2023. In delivering its Award the arbitration tribunal ruled in the Award that Nepal should refrain from demanding any further tax, fees, penalties or interest about the acquisition of Reynolds in 2016 and, in particular, that Nepal should refrain from enforcing the January 2021 Assessment.
Axiata also further claimed that it has prevailed on the Government of Nepal to abide by the terms of the Award, specifically the termination of any attempts to repeatedly tax the same transaction, and that the Government of Nepal and its Tax Authority the LTPO have thus far failed to withdraw the January 2021 assessment which is likely to carry a present-day value of USD433.6 million inclusive of interest up to 13 January 2021 and penalties but excluding any further interest after that date. If the January 2021 Assessment was upheld, and ignoring any further interest after 13 January 2021, this would take the total taxation on the USD1.365 billion transaction in 2016 to USD855.5 million, or 62.7% of the transaction value.
Considering the imminent and existential exposure arising from the scenario of double taxation, additional risk associated with the expiry of the company’s mobile license in 2029, with the potential of expropriation of Axiata’s stake by the Government of Nepal and the unfavourable foreign investment protection environment in Nepal, Axiata had accelerated its exploration of an exit.
It said the terms of the Share Purchase Agreement with the Purchaser would enable Axiata to exit on a clean basis.
Key terms of the SPA include a fixed consideration and a conditional consideration. The fixed consideration is USD50 million, of which USD5 million is payable within 6 months of transaction completion and the remainder is payable after 48 months post transaction completion. Axiata will also receive share of the going forward distributions contingent upon the future business performance and net distributions declared by Ncell until 2029, and any windfall gains secured by the Purchaser during this period.
Ncell retains full responsibility for its business and any of its liabilities, and the Purchaser will further indemnify Axiata against existing and future Nepalese tax claims in relation to Ncell.
The Board of Axiata said it has resolved that the best path forward for the Group would be to exit Nepal on the terms described.
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