The sale of Golan Telecom Ltd. is becoming complicated: the Ministry of Communications has told the company that it will likely be required to return NIS 270 million it received from the state as a refund of the guarantee it deposited.
Golan Telecom received the refund when it attained a 7% share of the private market, as an incentive for generating competition and lowering prices in the market. Since the company is now up for sale, the Minister of Communications has the right to demand that the company return the refund it received, and notice of this has been given to Golan Telecom controlling shareholder Michael Golan.
Section 18.5 of Golan Telecom's license states, "Without derogating from the above, insofar as the Minister's consent has been granted under this section for the sale, lease, or mortgaging of any of the assets used to fulfill the conditions of the license, the license owner shall return the difference between the license fee without the reduction mechanism listed in Section 86A and the license fee he actually paid. If the Minister has approved the leasing of insubstantial assets to a cellular operator, the decision on the returning the license is subject to the Minister's judgment."
In the framework of the tender won by Golan Telecom for 3G frequencies, it paid NIS 350 million as a guarantee. After it reached a 7% market share, the Ministry of Communications ruled that the company could obtain a NIS 270 million refund as an incentive for continuing competition in the market. The arrangement mentions 10 years in which Golan Telecom is to continue its investment in the deployment of a network and increasing its market share. In other words, the state waived revenue from the frequencies tender for the purpose of providing an incentive for competition in the private sector, and now that Golan Telecom is likely to be sold at such an early stage, the state can demand the return of the refund it gave the company.
Golan Telecom entered the market in 2012. Now, three years later, the company is being put up for sale. In this state of affairs, the company has obtained a NIS 270 million refund of its guarantee, but has not completed the deployment of its network, and is no longer meeting its obligation to increase its private sector market share, and already liquidated its network a year ago.
The liquidation of the network is a separate issue, which has not yet been solved. As far as the Ministry of Communications is concerned, this is a breach of the company's license, but the Ministry of Communications has not fined Golan Telecom, because it does not know what will happen to the company in the future. For the Ministry of Communications, if Golan Telecom completes the network consolidation agreement with Cellcom Israel Ltd. (NYSE:CEL; TASE:CEL), this could possibly make up for the breach, but since the breach took place a year ago, it is possible that even if Golan Telecom reaches an understanding with Cellcom for a joint network, the Ministry of Communications could still penalize the company for breaching its license.
Last Thursday, bids were submitted for the sale of Golan Telecom to the Rothschild investment bank, which is handling the process for Golan Telecom. The bids are contingent on a series of conditions. Bids were submitted by Pelephone Communications Ltd. and Cellcom, and HOT Mobile Ltd. is apparently also in the negotiating picture, although it has denied any involvement in the process. For Golan Telecom, the bids it received constitute an indication of whether it is worthwhile to be sold, or to remain in the market on the terms determined by the Ministry of Communications, in other words, construction of a joint network with Cellcom and investing in it for a prolonged period. The deal is still being examined by Michael Golan and his partners, but it is fairly clear that the chances of the deal going through are very small because of expected opposition by the Antitrust Authority.
Golan Telecom said, "The company does not comment on the sale process or any other process pertaining to the company's business, and this is even more true of information pertaining to the Ministry of Communications."
Published by Globes [online], Israel business news - www.globes-online.com - on November 4, 2015
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