Etisalat sues over alleged India mobile phone fraud

Etisalat launches a fraud claim against its partners in India, after it incurred Dh1 billion in losses in one of the country’s most serious corruption scandals.

Ben Flanagan

February 24, 2012

Updated: February 24, 2012 04:00 AM


Etisalat has launched a fraud claim against its partners in India after it incurred Dh1 billion (US$272.2m) in losses in one of the country’s most serious corruption scandals.

The UAE operator entered the Indian market in 2009 by acquiring a $900m stake in Swan Telecom, which was later renamed Etisalat DB (EDB).

Etisalat is now pursuing those it says were responsible for Swan Telecom’s acquisition of second-generation (2G) mobile licences in India, which earlier this year were revoked as part of a wider corruption case.

The UAE operator said it had issued proceedings in the Indian courts against Shahid Balwa, Vinod Goenka and the Majestic Infracon company, for alleged fraud and misrepresentation.

“Etisalat is facing very significant financial losses on its investment in EDB despite its having no involvement in the 2G licence application,” Etisalat said yesterday.

“Mr Balwa, Mr Goenka and Majestic Infracon were responsible for Swan at that time and for subsequently marketing the investment opportunity to Etisalat.”

Majestic, however, denied the allegations of wrongdoing. “No notice of demand or suit papers have been received by us,” the company said, according to Reuters. “There is no wrongdoing by us or our directors.”

India’s Supreme Court revoked 122 third-generation licences in 2008, after it was alleged they were sold at below market rates. Eight major operators, including Etisalat, were hit by the move.

Majestic Infracon, which owns part of EDB, was controlled by Mr Balwa and Mr Goenka, who were last year arrested on charges of cheating, forgery and paying bribes to get licences to offer telecoms services in 2008.

Etisalat said on Wednesday that EDB had commenced the closure of its network, prior to its licence there being removed on June 2.

Analysts said the Indian Supreme Court ruling suggested Etisalat had a good argument against its partners.

“I think they have a very good case to recover the money,” said Alok Shende, the founder director and analyst at Ascentius Consulting, who is based in India.

“There’s already a legal precedent that there was a fraud that was committed. That makes it easier for a company like Etisalat to try to get money through legal means from their erstwhile Indian partners.”

While Etisalat is winding down its operation in India, it said it was still considering its future participation in the market.

But analysts said it was likely that Etisalat would cut its losses completely.

“I think it’s the end of the day for Etisalat in India,” said Mr Shende. “At this point in time, they have a miniscule market share.”

Acquiring another player would also “come at a fairly aggressive price”, Mr Shende added.

Petr Molik, the head of the research division at the financial services group Mena Corp in Abu Dhabi, said he expected consolidation in the Indian telecommunications market.

“Given the number of operators in India today – even though it’s still a country of one billion people – it’s almost certain that consolidation will come,” he said.

Etisalat’s net profit for last year fell by 24 per cent to Dh5.8 billion, partly due to impairments over its troubled affiliate in India.

Shares in Etisalat, which are traded in Abu Dhabi, yesterday closed unchanged at Dh9.56.

Earlier this week, investors reacted positively when Etisalat said it planned to pay a dividend for last year, and recommended a restructuring of operations aimed at reducing costs.

The UAE operator also announced a plan to outsource its business support services, which it said would help reduce operating costs.

Nasser bin Obood, the acting chief executive of Etisalat, said he expected the move to be completed in two years. The company did not say if the move would involve redundancies.

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