Investigation unveils fraudulent buying, selling of telecom giant Ncell's stake in Nepal

Kathmandu [Nepal], January 7 : Investigation by Centre for Investigative Journalism-Nepal revealed that a British journalism organisation -- Finance Uncovered -- has found that a handful of Nepali investors have made fortunes by transacting shares of mobile service provider Ncell.
The joint investigation report made public on Tuesday has a detailed account about use of funds that appear to have flowed covertly to them via tax havens from the Malaysian telecom giant, Axiata and Sweden's Telia.
"The primary Nepali beneficiaries from these deals appear to be leading businessman Upendra Mahato, his associate Niraj Govinda Shrestha, and businesswoman Bhavana Singh Shrestha along with her company Sunivera Capital Venture," the report released on Tuesday afternoon stated.
The investigation has unveiled that Axiata paid USD 90 million to a secretive offshore company with a link to Bhavana Singh Shrestha, months before her company Sunivera bought 20 per cent of Ncell's shares and became Axiata's partner in the telecom company.
Telia's sale of 80 per cent of Ncell's share to Axiata in 2016 has caused great controversy in the Himalayan Nation. The latest investigation report claimed that it found Axiata has paid USD 90 million to a secretive offshore company with a link to Bhavana Singh Shrestha, months before her company Sunivera bought 20 per cent of Ncell's shares and became Axiata's partner in the telecom company.
Alongside, the Swedish telecom company Telia lent Niraj Govinda Shrestha USD 230 million through a tax haven in 2012 to buy the Ncell stake from Mahato. The report stated that Shrestha claimed to have only paid Mahato USD 3 million and it is not possible to see what the money from Telia's loan was used for.
"Our findings suggest overseas telecom giants provided money to Nepali investors to buy shares in Ncell in opaque ways, which appear to test Nepali's foreign investment rules. But Axiata denied to us that it had covertly financed the Ncell share purchase by paying money to an offshore company, called Southern Coast Ventures. Axiata stated it did not know what this company had done with the money after receiving it," report stated.
Upendra Mahato, a Nepali business tycoon has been mentioned in the report of replying that the information about the deal was "proprietary and confidential" when contacted on July 2020 but later in November of 2020, Mahato replied to CIJ saying, "As far as the question of wrongdoing in the transaction of 20 per cent share is concerned, if Telia bought the share illegally, it should not be legalised by letting the company pay the taxes. It should be confiscated. An illegal act should not be legalised by taxing it. That's all I have to say."
Issue of second-largest telecommunication giant, Ncell, in Nepali market has been a grave concern for taxpayers. Ncell entered Nepali telecommunication market as first privately-owned company where at least 20 per cent of Ncell shares was owned by a local investor.
At start of 2012, the 20 per cent stake was owned by Synergy Nepal, a company chaired by Mahato who was a long-standing investor in Ncell. The other 80 per cent was controlled by Telia of Sweden (then called TeliaSonera).
In March 2012 Synergy Nepal sold the 20 per cent Ncell stake to Mahato himself, who promptly sold it to Niraj Govinda Shrestha. Both Mahato and Shrestha have separately declared to courts in Nepal that the value of this sale was about USD 3 million.
Nepal's tax authority believed the true value of the shares was just under USD 42 million and stated that more capital gains tax was owed by Mahato. Mahato has challenged this tax assessment in court and the case is still ongoing.
However, the sums of money involved may have been much larger. Telia lent Shrestha USD 230 million in 2012 to buy the Ncell stake via one of its subsidiaries in the tax haven of the Netherlands. This loan was "reduced to zero" by Telia, so never repaid.
"It is not possible to confirm whether Shrestha actually paid some or all of the USD 230 million to Mahato to buy his Ncell shares, as the available public documents do not give this information and neither would tell us when we asked. The loan was not reported in Telia's group accounts at the time, only in those of one of its Dutch subsidiaries," the report stated.
The investigation claimed that Telia lent Shrestha the money to buy a 20 per cent stake in Ncell in the hope that Nepal's law would change in future and enable Telia to own the stake itself.
"We put it to Telia and Shrestha that this was not a genuine loan at all, but a device for Telia to get around Nepalese law by having Shrestha hold the shares on its behalf. Neither responded to this point," the report stated.
The foreign exchange law of Nepal also prevents the owner of shares in a Nepalese company from borrowing against those shares without the permission of the central bank. Nepal's central bank also has been quoted in the report saying "no record of any such loan being authorised, as the foreign exchange law requires, or brought into the country."
The report has stated possibility that USD 230 million may have remained offshore. This would create a risk of tax being avoided in Nepal on any profits from it, contrary to the Income Tax Act.
In April of 2016, Telia decided to sell its controlling stake in Ncell to Axiata after being concerned about the risks of corruption in obtaining official permissions for divestment.
At the same time that Telia sold its stake in Ncell to Axiata, Niraj Govinda Shrestha sold his 20 per cent stake to Sunivera Capital Venture in Nepal. This company was solely owned by Nepali businesswoman Bhavana Singh Shrestha (who is not related to Niraj Govinda Shrestha) and was registered on December 8, 2015, four months before the sale of Ncell.
Niraj Govinda Shrestha declared a profit of US$105 million on the sale and paid tax on it in Nepal. Neither he nor Mahato would explain the investigating organisations how the same Ncell shares could be bought in 2012 for a declared price of only USD 3 million and sold for USD 105 million only four years later.
Nepal's Office of the Auditor General said in April 2017 that Shrestha's sale of his shares to Sunivera had been massively undervalued and he should pay USD 57 million more tax, plus interest and charges.
Shrestha was then required by Nepal's tax authority to pay a slightly smaller amount than that identified by the Auditor General. Shrestha challenged the tax authority, arguing in a statement to the court, that the tax authority was wholly wrong to make its own estimate of the market price of the shares and should, according to him, have accepted for tax purposes the price agreed between the buyer and the seller. The case is still ongoing.
Between 2013 and 2015, Axiata engaged in a series of share transactions with the mysterious Southern Coast Ventures. First, Axiata allowed it to increase its ownership of Glasswool to 15 per cent. Axiata's accounts do not provide any evidence that Southern Coast Ventures paid for these extra Glasswool shares.
Then on December 8, 2015, Axiata paid USD 90 million to Southern Coast Ventures to buy back 10.3 per cent of Glasswool. In other words, USD 90 million flowed from Axiata to Southern Coast Ventures two weeks before Bhavana Singh Shrestha, the owner of Sunivera who is married to Acharya, signed an agreement with Axiata to work together as shareholders of Ncell in Nepal.
Axiata denied any breach of the law in Nepal or other countries, in respect of these transactions and the organisations have found no evidence to suggest otherwise. Sunivera did not respond to the questions of investigative journalists.
But Axiata has not explained its dealings with Southern Coast Ventures in any detail. When the investigating organisations asked about them, the Malaysian telecom company referred us to its corporate filings, which provide next to no information about this company and none at all about its owners.
Axiata also said it has paid more than USD 420 million in capital gains tax in Nepal on its acquisition of Ncell, though this tax payment is in dispute between Axiata and Nepal and is currently going through arbitration.