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Corporate Feb 24, 2012

Collateral damage: Etisalat’s India exit cost 2,000 jobs and a legal suit

By Firstbiz Staff

After Etisalat's announcement of shutting its India operations, following the Supreme Court order cancelling telecom licenses allocated to Etisalat DB and others, reports have emerged that the move will lead to significant layoffs from Etisalat's end as well. Sources have told CNBC-TV18 that DB Etisalat will be laying off about 2,000 employees in the next two months.

What's worse is that the UAE-based telecom operator is suing the promoters of its India JV for fraud and alleged involvement in the 2G scam. Etisalat said it has initiated legal proceedings against Vinod Goenka and Shahid Balwa, promoters of DB Realty and Majestic Infracon Private Ltd, a DB Group company, for fraud and misrepresentation.

DB Group is set to exit the telecommunications venture altogether . However, the exit that promoters Shahid Balwa and Vinod Goenka are planning will come at a significant cost since they will have no choice but to write off this amount.Etisalat had paid $405 million in 2008 for the 45 percent stake in Balwa-promoted Swan Telecom , which was later renamed Etisalat DB. Etisalat has written off $827 million from its balance sheet.

According to a report in the Economic Times, Etisalat DB is already facing claims of around Rs 3,700 crore from banks and infrastructure companies. CNBC-TV 18 reported yesterday that the company has also cancelled its $400 million IT outsourcing contract with Tech Mahindra.

Adding to their woes, telecom tribunal DoT issued a notice to Etisalat DB on Thursday on Anil-Ambani owned Reliance Infrate's plea seeking to recover Rs 1,200 crore from the telecom player. In their petition, the ADAG group firm has urged the tribunal to attach the property and freeze the account of Etisalat DB to secure its dues.

In 2009, Etisalat DB had entered into 10-year pact with RITL, a subsidiary of RCom, for infrastructure leasing to provide GSM services after getting 2G spectrum. However, the ADAG group firm discontinued services to Etisalat in January following non-payment of dues.

Etisalat had paid $405 million in 2008 for 45% stake in Balwa-promoted Swan Telecom , which was later renamed Etisalat DB.

On Wednesday, Etisalat had announced that it would shut shop in India which will impact 1.7 million subscribers. Earlier this month, Etisalat said it was taking a $829-million hit on its Indian earning following the apex court verdict.

Goenka and Balwa issued a statement saying that "There is no wrongdoing by us or our directors". It further added, "We had filed a case for mismanagement in the CLB against Etisalat, which was in management control of the JV company. This was withdrawn because they said they would run the JV properly, which was not done." Unlike other similar JVs, which built business and revenue, Etisalat DB went nowhere under the Etisalat management, it added.

Watch more on CNBC TV 18 Video

by Firstbiz Staff

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