Axiata Sells Ncell Stake Amidst Tax and Regulatory Challenges in Nepal

Axiata Group, a prominent telecom player, has announced its deal to sell its 80 percent stake in Ncell Axiata, a leading telecom operator in Nepal, to Spectrlite UK.
Axiata Malaysia
This decision follows a comprehensive evaluation of the business landscape in Nepal, citing challenges related to unfair taxation and regulatory uncertainties as reasons for the divestment.

Axiata ventured into the Nepalese telecom market in 2016 with the acquisition of Reynolds Holding for USD1.365 billion, securing the substantial stake in Ncell. Despite settling a significant capital gains tax (CGT) amounting to NPR47 billion by 2020, additional tax assessments were imposed on Ncell by the Nepalese Tax Authorities.

These assessments, including a substantial sum of NPR57.9 billion under the Income Tax Act of Nepal in January 2021, led to legal disputes and international arbitration proceedings. The International Centre for the Settlement of Investment Disputes (ICSID) ruled in favor of Axiata, directing the Nepalese government to cease further tax demands related to the 2016 acquisition.

Despite the tribunal’s ruling, the Nepalese Tax Authority has yet to withdraw the January 2021 assessment, potentially adding up to USD433.6 million inclusive of interest and penalties. This looming threat of double taxation, coupled with uncertainties surrounding Ncell’s mobile license expiration in 2029 and the foreign investment protection environment in Nepal, prompted Axiata’s accelerated decision to seek an exit strategy.

The Share Purchase Agreement (SPA) with Spectrlite UK outlines terms for Axiata’s exit, featuring a fixed consideration of USD50 million. USD5 million will be paid within six months of transaction completion, with the remaining amount disbursed 48 months post-transaction. Additionally, a conditional consideration component includes a share of future distributions contingent upon Ncell’s performance until 2029 and any windfall gains achieved by the Purchaser during this period.