Rudra Pangeni and Deepak Adhikari, Centre for Investigative Journalism-Nepal
He is one of Nepal’s richest tycoons with a fortune derived in part from his involvement in Ncell, one of the country’s biggest businesses.
But just how much money has Upendra Mahato made from Ncell? And how much tax has he paid on his profits?
Mahato sold shares in Ncell (previously called Spice Nepal) in 2012 and he appears to have sold shares in 2008 as well.
In both cases, our findings raise the question: did Mahato make hundreds of millions of dollars in profit from these sales and avoid tax on it by keeping the money offshore?
As we have reported, it is possible that some or all of a US$230 million offshore loan to buy 20 per cent of Ncell’s shares in 2012 may have ended up with Mahato.
We have also found evidence suggesting that another US$203 million may have been paid offshore in 2008 for shares in the telecoms company, then called Spice Nepal.
After we sent our questions twice to Mahato, he spoke briefly with CIJ-N. “Some people can’t digest the fact that Nepalese businessmen have done well overseas. That’s why they go after these businessmen looking for holes in their [business] dealings.
“As far as the question of wrongdoing in the transaction of 20 percent share is concerned, if Telia bought the share illegally, it should not be legalised by letting the company pay the taxes. It should be confiscated,” he said. “An illegal act should not be legalised by taxing it. That’s all I have to say.”
The Cyprus structure
Back in 2008 Spice Nepal, was 60 per cent owned by the Visor Group of Kazakhstan and 40 per cent owned by two companies apparently controlled by Mahato himself, one of which was in Cyprus and the other in Nepal.
Photo; Shaligram Tiwari
We have seen a document that appears to be a sales and purchase agreement, dated 19th May 2008, which says that Mahato’s Cyprus company, Daltotrade, agreed to sell its 20 per cent stake in Spice Nepal for US$203 million. The buyer was Reynolds Holding, an offshore company controlled by Visor.
Mahato appears to have signed the document, whose text also indicates that Telia had an interest in the deal, which was linked to Telia’s plans to become an investor in Spice Nepal afterwards.
We asked Telia, Mahato and Visor to confirm the authenticity of this document but none of them responded to our specific questions about it.
Daltotrade sold its Spice Nepal shares to Reynolds in July 2008, according to official records.
Then in October 2008, Telia acquired indirect control of Spice Nepal from Visor via the tax haven of the Netherlands. Telia said it paid Visor US$484 million for this investment and a smaller telecoms company in Cambodia.
If Daltotrade sold its Spice Nepal shares for US$203 million, as the document implies, then the tax bill in Nepal would have been around US$50 million. This is because Nepal charge tax at 25 per cent on the capital gains earned by non-residents from selling the shares of local companies.
However, there are reasons to think that profits from the share sale may have been kept offshore and were not taxed in Nepal.
Daltotrade was domiciled in Cyprus, a tax haven in the Mediterranean. And Nepal’s central bank told us, in response to a freedom of information request, that it has no record of Mahato having brought back this amount of money to Nepal.
A source with direct knowledge of the matter says that Nepal’s tax authority issued a demand for tax but ended up collecting less than US$1 million.
We put these matters to Mahato but he has chosen not to respond.
Telia would not comment to us about the specifics of these share deals in 2008. The Swedish company denied that it had contributed to any tax not being paid in Nepal by others and said that Telia itself “has paid taxes that are required by law to be paid.”
In 2012, Mahato sold his remaining 20 per cent stake in Ncell to his business associate Niraj Govinda Shrestha. Mahato has told a court in Nepal that he was paid about US$3 million from this share sale.
However, Telia lent Shrestha US$230 million in 2012 via the tax haven of the Netherlands. A Telia spokesman later told the media that the loan “financed” Shrestha’s purchase of the 20 per cent stake in Ncell. However, no such loan has been reported to the central bank in Nepal as the law requires.
This raises an important question: did Shrestha pay some or all of the US$230 million to Mahato or entities linked to him, somewhere outside Nepal?
If so, then it is possible that one of Nepal’s richest men may actually have earned more than US$400m from the sale of shares in the telecoms company: in 2008 (as much as US$203 million) and in 2012 (as much as US$230 million).
It is not known how much of his own money Mahato invested in Spice Nepal (later Ncell) and he declined to tell us.
A confidential source with detailed knowledge of the telecoms company’s finances in the mid-2000s told us that Mahato “probably invested about forty million rupees” (less than a million US dollars) of his own money in it.
If Mahato’s total investment in the company was as small as this overall, then he would have made an enormous profit. We put this point to Mahato and asked him to comment on it, but he did not respond.
The Large Taxpayer Office has accused Mahato of avoiding tax on his capital gain from the 2012 share sale by under-reporting its value. Mahato has challenged the tax authority, arguing in a statement to the court that it has acted arbitrarily and unfairly in his case, and the case is continuing.
Our findings raise questions as to how much tax Mahato should have paid on his profits in 2008 as well.
Path to the top
Today Mahato lives with his family in a domed neoclassical villa in Bishalnagar, an upmarket area of Kathmandu, according to a real-estate magazine called Property which is published in the Nepalese capital.
The sprawling property boasts landscaped gardens. Its opulent interior was reportedly renovated by a Russian architect.
Russia and the former Soviet Union have loomed large in the life of Upendra Mahato, who completed a master’s degree in Engineering from the State Polytechnic Academy in Belarus in 1988.
When the Soviet Union collapsed in 1991, Mahato, like many entrepreneurs, sniffed opportunity amid the chaos. He reportedly dealt in oil products, televisions and real estate and bought Amkodor, a manufacturer of heavy machinery which is based in Minsk, the capital of Belarus.
Aidan Karibzhanov, the chairman of Visor, the Kazakh investment firm which became Mahato’s partner in Ncell, told the Russian-language InBusiness news site in 2016 that Mahato’s television manufacturing business had not gone well.
But then his fortunes improved: “They converted the warehouse of their television plant [in Moscow] into the largest flea market through which pirated CDs, electronics and other things were sold. So this Nepalese suddenly became a very wealthy man.”
We asked Mahato about this but he did not respond. We also contacted Visor to ask about various issues concerning Spice Nepal, but the company did not respond to our inquiries.
Mahato returned to Nepal in the early 2000s. In 2003 he became the founding president of the Non Resident Nepali Association, a global network of the Nepalese diaspora.
Mahato went into partnership in Spice Nepal with Raj Bahadur Singh, the son-in-law of the former King Gyanendra. At this point, Spice Nepal reportedly had no significant assets except a telecoms licence.
Spice Nepal needed foreign investors to provide capital and expertise. This is where Visor came in. Karibzhanov told the Inbusiness news site that he was introduced by a Moscow friend to Mahato, who asked him to invest in Spice Nepal.
Visor sent a team to Nepal in 2005 and Spice Nepal was transformed. By the end of 2008 the company had acquired 1.8 million customers and was making net sales of more than US$20 million a year, according to official figures.
By 2008 Spice Nepal was big enough to be an attractive investment proposition for Sweden’s TeliaSonera (now Telia).
Mahato sold his last shares in Ncell in 2012.
The questions of how much profit Mahato made from one of Nepal’s most important companies, and whether he paid enough tax on this profit in Nepal, remain to be answered.
This story is a collaboration between CIJ-N and Finance Uncovered, a UK-based journalism organization.
