Hutchison sues KPN over 3G loan refusal

12 Jun 2003

Hong Kong-based Hutchison Whampoa is suing Dutch telecom firm KPN over its refusal to grant a loan worth US$248m (£150m sterling) to support Hutchison 3G, otherwise known as 3, its UK and Italy-based 3G operator. However, the Dutch telco has counter-attacked with a lawsuit describing the funding call as “invalid”.

According to Hutchison’s suit, KPN broke a shareholder agreement when it didn’t pay its share of a £1bn sterling requested by 3’s board in March. The lawsuit has been filed at the High Court in London by Hutchison’s lawyers.

Hutchison Whampoa and its partners are spending US$16.7bn on 3G rollouts in nine countries, including Ireland, the UK, Italy and Australia. Hutchison owns 65pc of the UK-based 3, with Japanese mobile giant NTT DoCoMo owning one fifth and KPN owning the remainder.

In the funding call in March, Hutchison, KPN and DoCoMo were required to provide up to £1bn sterling to keep the venture afloat, and were requested to pay the sum in proportion to their respective stakes. KPN’s decision not to sink further cash into 3G was welcomed by telecoms analysts across Europe who have described 3G ventures as being unwieldy and unlikely to deliver a swift return on investment. Others have mooted a potential link-up between KPN and MmO2, which would have proven awkward if it continues to invest in 3.

In its defence, KPN yesterday served a notice stating that it considered Hutchison Whampoa to be in material breach of the shareholders agreement, by supporting an invalid funding call.

It has emerged that in May KPN asked Hutchison Whampoa to buy back its shareholding in 3 at 140pc of the fair price, as stipulated in the shareholder agreement.

In legal skirmishing, Hutchison last week issued a claim form in the UK High Court seeking a declaration that the funding call was indeed valid. As well as this Hutchison Whampoa asked that the High Court rule that KPN’s stake in 3 can be diluted by £150m sterling, as specified in the shareholders agreement.

Hutchison 3G U.K. bought the U.K. phone permit in 2000 and its Hong Kong parent later sold a 15pc stake in the venture to KPN for £900m sterling. Last year, KPN wrote off €1.17bn of the stake’s value. Hutchison Whampoa, confident that it will recoup the licence and network cost from users of its high-speed videoconferencing services, has refused to write down the value of the venture.

It is clear that KPN is trying to extricate itself from the venture without suffering any further material loss. KPN has said Hutchison Whampoa is liable to buy the Dutch company’s stake in Hutchison 3G and KPN is also demanding damages from Hutchison.

By John Kennedy