What is going on with the shareholders’ good boy?

The listing of Grameenphone (GP) with the local capital market was nothing short of a festival for investors, market professionals and even regulators.

The street still remembers November 16 of 2009, the day of GP's debut in the Dhaka and the Chittagong stock exchanges. The first day's trading of the country's leading telecom operator pushed the then benchmark general index of the Dhaka Stock Exchange, DGEN, 22 percent up.

Experts blamed a faulty index calculation for the unusual hike in the market index. They said the index calculation did not adjust the rational weight in terms of floating shares. Later, the regulatory authority solved the issue through the introduction of a new index.

However, investors then were happy with the upward surge in share price of GP, as other stocks also got higher valuations to cope up with the increased valuation of the entire market.

Keeping the debate over the level of stock pricing at that bull market, GP was a name and symbol of gains and investors loved it naturally.

Thousands and thousands of new investment accounts had been opened only to buy, sell or hold into GP shares and that is regarded as a case study how good stocks add investors to the market.

The company proved its image as shareholders' good boy by posting continuous growth both in the top and the bottom lines along with high efficiency, profitability and shareholders believe it was an outcome of management's tremendous commitment to create more value for them.

High dividend and cashing out more from profits each season also made GP a darling stock for all sorts of investors.

The situation could be best described as "you must hold some GP shares because you have learned how to analyse a stock. No matter if you are a foreign fund manager, or a local institution or an ordinary Bangladeshi individual."

Series of policy adversaries and regulatory risks testing investors' nerve  

Tussle with industry regulators and tax authority is nothing new for big businesses around the world and GP has also had to undergo the same experience.

But in recent years, the company has been going through difficulties it has had experienced never before. GP is under a severe pressure to pay disputed audit claims that surpass its net profit in last three years. Net profit is the amount of profit a company makes after paying all taxes.

GP has been firmly rejecting the idea of imposing such a huge amount of obligation in a retrospective basis and it has no provision for such expenditures.

Meantime, the government recently permitted the BTRC, the telecom regulator, to come up with show-cause notices to GP and Robi asking them to explain as to why their business licences will not be revoked if they fail to comply with the regulatory orders to pay the audit claims. According to the audit report, GP and Robi owe the government Tk12,580 crore and Tk867crore respectively.

Just before hearing the bad news, investors had been praying for the company to withstand SMP implications as the BTRC through its new policy declared GP a significant market power and to ensure a level playing field in the sector they as usually imposed lots of barriers to GP's operational activities towards growth path.

Amid the recent most dispute over the audit claim, the BTRC has stopped approving any new product and package in the company's business. The BTRC had also curtailed the bandwidth capacity of GP for a short period of time however the regulator later withdrew the decision considering telecom users' sufferings.

All this bad news has made GP stakeholders anxious. Even though they are happy to see the company still managing its financial disclosures as it posts more or less growth in turnover, profit and very importantly with high profitability, a portion of them looks worried.

Their question is: for how long the company can manage swimming against the regulatory tides?

How the dispute over Tk12,580 crore may end?

GP has denied accepting the figure said to be unpaid bills, taxes and added interest amounts. They rather called for arbitration as a constructive solution.

On the other hand, the BTRC too is maintaining its view that there is no legal scope as the Telecom act of the land has no provision for that.

Zakir Hossain Khan, a Bangladesh Telecommunication Regulatory Commission spokesperson, told The Business Standard that according to audit papers the company owes the commission and it is a must for them to pay the total amount.

Meantime, more than five equity analysts at different top investment research teams of the country have recently talked to The Business Standard and shared their independent views seeking anonymity in publication.

They are speculating different scenarios in terms of regulators' next moves and analysing the possible financial implications of those.

One said that if the company can manage to be in an arbitration process, they may have to pay a chunk of Tk5,000 crore as the arbitration cases over the world result this way. The company is more likely to borrow from local sources if they have to pay the amount at a time. That is going to add a burden of interest bearing loans. And if GP is allowed to pay agreed amount in instalments that also will take away from annual profits.

The valuation now 

Another equity analyst said, "Each GP stock should be priced at Tk500 at least, if we consider the quality of the business and track record of the stock."

"If the company has to pay the full amount of disputed Tk12,580crore, it will mean a less than Tk100 burden against each of its share. If no further headwinds, I believe the stock is still undervalued" he added.

The stock market will also be at risk if GP's licence is revoked

GP, the biggest company listed with the local bourses contributes to over 13 percent of the total market capital at the Dhaka Stock Exchange (DSE). DSEX, the broad index there, loses 1.7 point if GP stock goes 1 percent down.

In such a context the stock market as a whole is at risk of going further down, if panic sales of GP stocks take place. And it will be exactly the opposite to how GP impacted the whole market positively at its debut.   

The DSEX is now consolidating at a height level above 5100 and it is struggling to recover the bleeding due to shocks on investors' sentiment about financial and manufacturing stocks followed by negative headlines on money market scenario, bank companies' health, PLFSL liquidation process, gas price hike, tax implication on profit retention, stock dividend issuance and many more.

On Sunday, Robi negotiators had been seen in the BTRC office and sources confirmed that they were seeking a win-win solution. 

Investors are interested to know about GP.

Being asked for the company's present stance, GP officials, said the company's position was still the same as that they said in a press conference on July 25.

This means they believe the regulatory impositions are not fair and they want a solution through arbitration.  

The BTRC sources hinted that GP and Robi were going to receive show-cause notices with regard to the revoking of their licence very soon.   

Analysts expressed their concerns over the upcoming bad news as it may hurt investors' sentiment.

What is going to happen ultimately?

"Cancellation of operator licence is an extremely serious measure and I believe the government will be fair with industry players ultimately," said Chartered Financial Analyst Shahidul Islam, president of CFA Society Bangladesh.

Another CFA said, "I strongly believe the threat to revoke the licence of GP is a part of the negotiation to collect the disputed taxes and other bills."

"One more thing, the company also can go to the court to get back the operator licence back", he added.  

The half-yearly report of GP disclosed that the company is serving more than seven and a half crores of subscribers who constitute about half of Bangladesh's population.