Telenor shuns India after troubles hit profits

Reuters News
Posted: May 08, 2012 4:23 AM
Telenor shuns India after troubles hit profits

By Balazs Koranyi

OSLO (Reuters) - Norway's Telenor distanced itself further from the Indian market on Tuesday, excluding the country from its 2012 forecasts for the first time after licensing problems there led to massive writedowns that weighed on its quarterly results.

State-controlled Telenor posted a quarterly net loss of 390 million crown including minority interests after writing off the remaining 3.9 billion crown ($672.45 million) value of its Indian unit Uninor. That compared with a profit of 3 billion a year earlier.

The group's troubles in India contrasted with an improvements in several key markets that had been struggling with margin pressure.

India's Supreme Court earlier this year ordered the cancellation of 122 telecoms licenses after a corruption-tainted licensing round.

The proposed fee for a replacement license is prohibitively high.

"This (fee) package will make it almost impossible for incumbents like Telenor to stay in India," Chief Executive Jon Fredrik Baksaas said on Tuesday.

Analysts have welcomed Telenor's possible exit as the low-margin market has been a drag on the firm's earnings for years, and winding up the operation would be a short-term boost to both earnings and the stock.

"When they exclude India from their guidance, that's a clear signal that unless something changes, they'll exit," Espen Torgersen, an analyst at Carnegie said.

"On the operations, it's difficult to imagine a more 'in line' result,' Torgersen added.

Telenor's shares offered little reaction, trading 0.2 percent higher at 0710 GMT (3.10 a.m. EDT), as most of the Indian troubles have already been priced in, analysts said.

Telenor's earnings before interest, taxes, depreciation and amortization (EBITDA), which exclude the one-off India charge, rose 2.9 percent to 7.62 billion crowns, coming in not far from forecasts for 7.79 billion crowns.

In Norway, where Telenor had earlier struggled with margin pressure, operations improved, while some of its Asian operations were also above forecasts, analysts said.

Still, the company's outlook will be uncertain until its troubles in India, and to a lesser extent in Russia, are resolved.

"We remain positive on Telenor's operations; however we still have concerns that the market is too optimistic on India and Vimpelcom, where we see a risk of negative news flow in the short term," Citi said in a note to clients.

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In Russia, the anti-trust regulator has sought to overturn Telenor's recent purchase of shares in mobile operator Vimpelcom, charging the Norwegian telecoms group acted illegally.

The move, the latest twist in a long-running corporate battle, would undo the deal through which Telenor took back partial control of Vimpelcom from Altimo, part of Russian oligarch Mikhail Fridman's Alfa-Group, to give it a greater say over strategy.

Based on the new guidance without India, full-year revenue is expected to grow at a rate "above 4 percent" after a previous target for "above 5 percent" including India.

Telenor did not provide comparative guidance figures but said "on comparable basis, the positive outlook is maintained."

($1=5.7996 Norwegian krones)

(Editing by Mike Nesbit and Helen Massy-Beresford)