Bahrain's Batelco sells India venture after telecom scandal

The sun rises behind a communications tower in New Delhi March 20, 2006.

DUBAI - Bahrain Telecommunications Co BTEL.BH is selling its 43 percent stake in Indian affiliate S Tel for $175 million, the first exit by a foreign operator since an Indian court cancelled 122 telecoms licences last week amid a corruption probe.

Batelco will sell the stake to India partner Sky City Foundation Ltd, receiving the price paid to acquire its S Tel holding in 2009, the Bahraini operator said on Wednesday. Completion was expected in the fourth quarter.

On February 2, the Supreme Court ordered licences held by eight operators to be revoked amid a 2G telecoms scandal.

"This (the sale) is a part of an earlier understanding with its Indian partner to exit, given the circumstances surrounding the 2G probe in India over the past 12 months," Batelco said, adding the deal had been in the works since late 2011.

The Indian licences, which are to be revoked in four months, were awarded in 2008, before Batelco bought into S Tel.

S Tel said it was looking at options including filing a review petition before the court against the cancellation order.

"The telecom sector, particularly for the new operators, over the last two years had become like a badly planned hurdle race," S Tel said. "Batelco was very uneasy in India and expressed their wish to sell their stake."

Batelco said earlier this week it had "received certain representations and warranties from S Tel's promoter regarding the validity of the licence", which may have cleared the way for the it to sell its stake.

"This sale is a surprise. It is positive for Batelco because most analysts thought the company would have to take a writedown from S Tel following the court verdict," said a regional telecoms analyst who declined to be identified.

"Batelco's shares are undervalued and this news should create some positive momentum in the stock in the short term."

The thinly traded stock closed at 0.39 dinar.

S Tel is a joint venture between Indian group Siva and Batelco, according to the Indian company's website. Siva Group chairman C. Sivasankaran also founded Aircel, India's seventh-biggest mobile operator by subscribers, before selling his stake in the company to investors including Malaysian group Maxis.

S Tel had 3.6 million customers as of December to rank 12th out of 15 players by subscriber base. It has licences for six smaller telecoms zones out of a total 22.

India's older mobile carriers, such as Bharti and British group Vodafone's (VOD.L) local unit, were seen as major beneficiaries of the court ruling, which is likely to accelerate the winnowing of an industry long seen as ripe for consolidation.

United Arab Emirates operator Etisalat ETEL.AD owns a 45 percent stake in India affiliate Etisalat DB, which is also set to lose its licences after last week's court verdict. Etisalat has said it would study the Indian court judgement, but declined to say on whether it would now seek to exit the country.

Norwegian group Telenor (TEL.OL), whose joint venture in India is also set to lose its licences after the court ruling, has said it will fight the order and has not ruled out abandoning the country, while Russian conglomerate Sistema said it would contest the verdict.

(Additional reporting by Devidutta Tripathy in New Delhi; Editing by Dinesh Nair and Dan Lalor)