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Thursday, October 30, 2008

When Things Couldn't Get Any Worse

Couple months back, I wrote an article regarding Grameenphone's proposed $300 million IPO. I had concluded that instead of investments in Bangladesh, this money would leave first-class to Norway. GP and others have covered every nook of Bangladesh and they aren't interested in upgrading to 3G anytime soon when barely no one uses the internet, or talks with a smart phone or really knows how to operate a smart phone. (This is meant in a broader sense so don't be insulted if you fall in this category -which you probably do)

I shouldn't gloat. But just recently Telenor bought 60% of Unicom Wireless for a staggering $1.07 billion. This is more astonishing considering Unicom only paid $337 million for the India-wide mobile license earlier this year. Initial estimates are that they have to spend an additional $3 billion in the next three years to compete in a market that already has Virgin, Vodafone, Reliance, Tata and Airtel. Telenor investors didn't really digest this news really well, and the stock tanked 26%.

So Telenor needs $1.07 billion fast. I wrote couple months back that $300 million of the Bangladeshi IPO would be used for not-in-Bangladesh ventures. Since that was delayed to March 2009, a new Bangladeshi bond project worth $60 million in in the works. Newspapers did not connect the dots, but its safe to assume that the $60 million will be used to finance the Indian venture and not any Bangladeshi projects. Furthermore this $60 million bond is to be offered to private institutional investors. The same investors that Grameenphone decided to eliminate and provoke with GP's weird mobile-phone banking proposal. But then again Bangladeshis are highly skeptical of anything that involves India. Now its a double whammy -India and Grameenphone.

But $60 million from Bangladesh isn't going to cut it even if it is successful. Telenor is planning yet another IPO (or share sale to be specific) only this time in Norway. And only this time they 'plan' to raise $1.78 billion from the Norwegian market in the midst of their stock taking a dive and the entire world also taking a dive. It wouldn't surprise me if Telenor decided to hold multiple IPOs worldwide and slash the targets as time passes.

And this is the worst it could get right? Wrong.

Just recently, Russia decided to freeze (not literally as Telenor first assumed) all of Telenor's shares in Vimpelcom (the second largest mobile phone company there). Why? Because only this time instead of Yunus, Telenor has Mikhail Fridman as a partner. To make matters difficult Fridman is not aware what a Nobel Prize is or that he has been nominated for one multiple times. This is one Russian gangster who is too rich to pay off and doesn't make empty threats on Norwegian TV. Instead he works his magic and the next day Telenor has its shares frozen. And this is only his first baby step.

And this time, it is Telenor whining and making empty threats to Fridman.


W. said...

Another positively truthful and unbiased article about Telenor/Grameenphone, Ali bhai!

Here's how much Grameenphone intends not to invest in Bangladesh and/or 3G technology:

Huawei wins Bangladesh Grameenphone telecom deal (estimated to be worth more than $500 million over 3 years)

Ericccon wins Bangladesh Grameenphone infrastructure deal (estimated to be worth more than $500 million)

Grameenphone gets extra 7.4 MHz of spectrum from GoB for BDT 592 crore (approx. $88.5 million)

All this after GP already invested more than $500 million in 2007.

These infrastructure upgrades supposedly pave the way for 3G. Of the three 3G licenses expected to be auctioned by the government (who knows when), one would be very surprised if GP, as the largest mobile operator, didn't buy one of them.

Forget smartphones. GP is also the nation's largest ISP and everyone would benefit from greater data access speeds to the internet or telephony in general. Although, in the interest of fairness it must be said that 3G is not a very deeply penetrated technology. I think less than 10% of the world's mobile phone users have it (I'm not sure, I remember reading that somewhere a while back). Maybe we'll have 4G by the time all the pieces fall into place.

I know, I know, let me retort for you. All these foreign companies are going to send back all the money to their respective nations.

What's going to happen is that Telenor is going to pay $500 million to Huawei and Ericsson each, get absolutely nothing in return (nor will Bangladesh), and both Huawei and Ericsson will send the money right back to China and Sweden, respectively, and have one big party.

If you really want to call bullshit on GP, you should be all over the recent comments from them that the IPO failed due to the global financial crisis.

Lastly, a minor nitpick, your stock chart graphic is for the Telenor ADR (American Depositary Receipt) which is traded in New York, not Telenor proper as listed on the Norwegian bourse. They had a huge fall of almost the same percentage on the Norwegian market as well after the news about India (2% better, but huge nonetheless). They're both bad news, but the Norwegian one is more relevant.


Ahmed Ali said...

Thanks for dropping by. When Citibank was in negotiations to buy up sick bank Wachovia, it just meant that more resources, time, money will be spent in the American market than what is needed. The other international divisions of Citibank were set to suffer. An Indian for GP just means we won't be getting 3G.

I do not think 3G is going to move when less than 1% of Bangladesh uses the internet. We just feel that most people do because most of us do. GP feels more than the largest ISP when it doesn't mean anything. But Banglalink, AKtel, Teletalk and Warid are still using GPRS instead of Edge. But then again network broadband expansion for GP is still necessary to make voice calls on its aging 2G network. But then again if 3G is to work, I believe GP is the only one who can market this to get more people using email and internet. Instead of just yakking or SMSing.

In any means an IPO and bond issue did have other aims. First because Telenor didn't need such a overpriced and high-premium IPO and neither did it need a bond issue for a company which they claim is their most profitable one. The network broadband expansion surely self-finances themselves. This extra cash from the IPO/bond was clearly for the expensive Indian deal.

Even though a world wide recession has had minimal impact so far, such an excessive premium on the GP IPO would have certainly led the market to collapse. I think its fortuitous it did not succeed. Because as you know, the poor people would have bought this IPO up like crazy.

The only way we will have 3G is if the regulator takes a step in getting rid of 2G. In the US the regulators makes it mandatory to get rid of aging technology such as AMPS and analog TV. Bangladesh should do the same. It is the only way less money will stop leaving.

Ahmed Ali said...

"If you really want to call bullshit on GP, you should be all over the recent comments from them that the IPO failed due to the global financial crisis."

I wrote so many articles regarding this. I think I drove everyone nuts. I even had other articles in place of this one rather than writing yet another GP bashing article. But the timing of this would be misplaced if I had published the other one.

But GP has been in the news so much these days, that it feels like I would be making a mistake by purposely not covering them. Even I am disheartened that I have to write yet another 'anti' GP article. But the bullshit in the newspapers makes it rather easy ;)

Anonymous said...

thank you for sheddin lite on the gp ipo scam.. heres some info.. u may reach me at

GP IPO- some facts
The debate is on abt the effect of the gp ipo on our market.

here are some facts abt gp excerpted from their prospectus.

we all knw that sec has approved gp ipo with 60 taka premium per share of tk 10 each.

but wht was interesting to seewas amongst other logic, the price has been justified based on avg eps of gp share for five years from 2004 to 2008. where as the avg of gp eps for those five years is 4.77.

but actually for the year ended 2008, eps of gp assuming tk 10 value per share is 2.49 taka only. so the offered price is abt 35 times its earnings.

the total shareholder equity of gp at december 2008 is 2758.81 cr. no of oustanding shares on that date is 121.52 cr based on 10 taka facevalue per share. so shareholder equity or book value per share is 22.69 taka.

nw gp is offering to collect 486 cr taka frm public by offering 6.94 cr share by ipo. similarly gp has raised 6.57 cr share by private placement at the rate of tk 74 per share.

if we add the total no of share after ipo it will be 121.52+6.94+6.57= 135.03 cr

total shareholder equity will become = 2758 cr+ 486 cr (ipo) + 486 cr (preipo)= 3730 cr.

so total share holder book value per share after ipo will be = 3730cr/135.03 cr= 27.62 taka

so gp is basically increasing its shareholder equity by almost 40% by issuing only 10% more shares? is that nt it?

they are issuing only 6.57+6.94 = 13.51 cr share. that is abt 10% of total paidup. the diluted eps per share after ipo for 2008 will be 2.24 taka per share.

of course in 2009 gp will get tax exemption but only for half year frm july, as tax period is frm july to june, so they will have to pay tax at regular rate until june. frm july to dec they may get tax cut benefit for going public.

so if we look at a glance, a gp ipo applicant is basically appllying for a share at 35 times its earnings and abt 3.5 times its book value.

but he is losing 43 taka in the very beginning as avg book value per share will become 27.62.

so was gp ipo a bad idea a year back? no.

then gp paidup was 1/5th of present paidup. gp cleverly gave 1:4 bonus to existing shareholders before ipo. if they were so giviing. why didnt they give the bonus after ipo?

it means after ipo they will basically adopt a conservative payout strategy.

also gp has expanded beyond its means. its the oldest gsm network around so its legacy costs in old equipment is higher i assume. also to maintain their image they spend hugely on market and branding.

but are they an efficent company?

their net profit margin is only abt 5%.

the reason i m sharing with u all this info is i believe there are much better companies listed on dse at much much better valuations than gp. u can go for applying one or two lot, but dont think that gp is some sort of alladin's lamp. their total strategy to me seems more like the 'new east india company'.

why sec gave permission to gp to issue shares by ipo at such high premium at 35 times its earnings or pe ratio is nt understandable to me. sec knws better.

for me i dont think this decision has served the interest of the growth ofthe capital market. like navana cng, gp ipo will also see siphoning out of common peoples money from their pockets to the hands of clever companies like gp.

we shud be careful abt them. we shud warn others around us also to be careful abt them.

NAIM said...

NAIM, GP shareholders will be very shocked if they find this. From last two years, telenor's (GP's parent) global yearly revenue is seriously dropped in comparison to other big multinational telecom company. 2009 yearly revenue, for example: T-MOBILE 86 billion dollar, O2 has 82 billion dollar, VODAFONE 75 billion dollar, ORANGE 72 billion dollar, TELENOR only 15 billion dollar. So what GP(TELENOR) can do with this small revenue & compete with giant multinationals when they come here. Source: wikipedia.

Anonymous said...

More to add.. A large number of staff from GP is quiting (some say situation is such that they have to quit. Many say since 2007 GP is overstaffed and as part of cost cut plan a situation is made so these staff quit GP. At same time, a large no of Norwegian expatriates have been appointed at GP. Some say, Telenor are putting its staff in GP because because its Norwegian operator is overstaffed too. True or fales, I think there are enough qualified telecom experts in this country, why many bangladeshi staff quiting GP and GP appointing expensive foreign experts(?)?