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23 Jun, 2009 06:52

Telenor slams ‘game’ of threatened VimpelCom stake sale

Norwegian telecom, Telenor, facing the possible sale of its stake in Russian mobile operator Vimpelcom by Russian bailiffs to pay a $1.7 billion fine, says the prospect is nothing more than ‘market manipulation.’

Trading in Telenor shares was suspended in Oslo on Friday after Russian bailiffs said they would prepare to sell the stake in lieu of a $1.7 billion fine imposed by a Siberian court in March. According to Telenor, Russia’s State Property Agency will take at least 2 months to prepare for the sale.

The court case saw VimpelCom minority shareholder Farimex sue larger shareholder Telenor for preventing the entrance of Vimplecom into the Ukrainian market. Telenor claims that Farimex, which has a stake of 0.002% in VimpleCom, is acting as a front for rival major shareholder Alfa Group, which has a 44% stake in VimpelCom, and has long been at loggerheads with the Norwegian telecom which has a 29% stake in the Russian mobile operator. Farimex won the case, with an appeal by Telenor set to be heard in September.

'Market manipulation'

Responding to the announcement that Russian bailiffs would commence preparations to proceed with selling the Telenor stake, Telenor Russia PR Director, Anna Ivanova-Galitsina said the move was market manipulation designed to pressure the Norwegian company.

“That statement is pure manipulation of the market, and an attempt to put pressure on Telenor, its investors and the management. There are still quite a few steps to be taken for the sale to take place. First of all there needs to be an agreement with a broker, there needs to be evaluation of the stake, that Telenor can contest. As soon as there is an evaluation Telenor will contest and that will stop the possible execution. If there is a sale we will not be buying back our shares because we do not want to play in this game.”

Analysts believe that any sale of the stake would do significant harm to perceptions of Russia in the global investment community, underlining, they say, existing perceptions about the rights of shareholders in Russian companies under Russian laws.

The long running dispute between Telenor and Alfa Group has revolved around sharp differences in how VimpelCom should expand, in particular with regard to proposals on expansion in Ukraine where Telenor has a stake in major mobile operator Kyivstar. The lengthy dispute currently sees court cases in both Russia and the United States still in play.

'absolutely disastrous for the investment case for Russia'

Chris Weafer, Chief Strategist at Uralsib, says any serious move to sell the Telenor stake in VimpelCom would be absolutely disastrous for the perception of Russia’s investment climate, although he says most investors still see the moves of recent days as part of the tough negotiation process between Telenor and Alfa Group.

“Well I think that despite the escalation in the last couple of days –the fact that the court case has been postponed until September, which gives a free run for the bailiffs to potentially confiscate the shares and sell them – still investors don’t believe that’s going to happen. The prevailing view amongst investors is that this is still part of tough negotiations between the Alfa Group and Telenor, but ultimately they will reach some sort of a deal, a compromise. If this were to move on to full confiscation and sale, that would absolutely disastrous for the investment case for Russia. But as I say right now investors don’t believe that that would be allowed by the government, because it would be so damaging and so destructive for the investment case. They believe that it is part of the tough negotiations, and that it will get resolved.”

'looking for other scenarios'

Margarita Zobnina, Professor of Economics at Moscow State University, is even more trenchant on the likelihood of bailiffs actually selling the Telenor stake, and is also seeing it as part of a negotiation process between Telenor and the Alfa Group.

“I think, the deal won’t take place. This is too important a deal both from the business point of view and international politics to be executed at the decision of a “Siberian court” and under such evident pressure. It goes without saying, that the case with Telenor will affect Russia’s reputation as a destination for foreign investment, as the company itself is a big foreign investor.

The behaviour of the people involved in this case clearly shows that this is just an attempt to put pressure on the company, which has gone too far. That is why the Federal Property Management Agency put off the hearing for at least two months, so as to give time to Telenor, not only to appeal to the court, but also to achieve remission. Anyway, when the case reaches the Supreme Arbitration Court, and I believe its objective, Altimo will start looking for other scenarios and Telenor should start preparing for this now.”

Earlier this year, Alfa’s telecoms arm, Altimo, said a merger of Kievstar, Telenor’s mobile operator in Ukraine with Vimpelcom, could be a desirable way out of the conflict.