For Sale: Telenor's $2.4B Stake in VimpelCom

Norway's Telenor says it is looking to sell its 33% stake in VimpelCom, which operates networks in Russia and a number of emerging markets, so that it can better focus on what it calls its "core operations."

The state-backed operator has had a troubled relationship with other VimpelCom Ltd. (NYSE: VIP) shareholders and will have grown concerned about the recent economic downturn in Russia and neighboring countries.

As a result of the move, Telenor Group (Nasdaq: TELN) said it would incur a non-cash impairment charge of 7.5 billion Norwegian kroner (US$900 million) for the third quarter, more than twice the operator's profit after taxes and non-controlling interests in the second quarter.

Despite that, markets appeared to respond favorably to news of the decision, sending Telenor's share price up by 3% during midday trading in Stockholm.

Telenor indicated that it would "explore all options" for a sale but warned investors that finding a buyer for the stake, currently valued at about $2.4 billion, could "take some time."

"The VimpelCom asset, where Telenor holds a minority position without the possibility to fully control the company, has been challenging," said Svein Aaser, Telenor's chairman, in a company statement explaining the move.

The operator went on to point out that its stake in VimpelCom has been losing value and currently represents just 8% of Telenor's market capitalization.

Telenor claims to have invested about NOK15 billion ($1.8 billion) in VimpelCom since first acquiring its stake in 1999. It says it has received a total of NOK20 billion ($2.4 billion) in dividends over that period, which equals the current market value of the shares it owns.

As the Norwegian player noted, VimpelCom's share price has recently suffered and was valued at just $4.11 in late September versus a book value of $5.64 -- explaining the impairment charge of NOK7.5 billion that Telenor expects to book for its third quarter.

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Telenor's 15-year involvement in VimpelCom has been turbulent, the company having frequently clashed with majority owner Alfa Group.

Controlled by Russian oligarch Mikhail Fridman, Alfa Group indirectly owns 56.2% of VimpelCom and has driven through a number of strategic decisions that have upset Telenor, centering on takeover activity in Ukraine a decade ago.

That Telenor says it will exit VimpelCom now does not come as a great surprise. Last year, allegations of corruption regarding VimpelCom's entry into Uzbekistan prompted former Telenor CEO Jon Fredrik Baksaas to tender his resignation, leaving his successor Sigve Brekke with a big decision to make about the VimpelCom stake.

Brekke says Telenor will henceforth concentrate on boosting revenues from the usage of Internet-based services across its various markets.

"Our ambition is to drive profitable growth in the telecom business, where Telenor will continue to monetize on the exponential data usage taking place across our footprint," he said in the operator's statement.

Besides its home market of Norway, Telenor owns and operates networks in Bangladesh, Bulgaria, Hungary, India, Malaysia, Montenegro, Myanmar, Pakistan, Serbia, Sweden and Thailand.

Last year the operator served about 189 million customers worldwide and generated NOK107 billion ($12.8 billion) in revenues.

A sale of the VimpelCom stake will end Telenor's involvement in parts of eastern Europe and central Asia and comes weeks after Scandinavian rival Telia Company took a similar decision to sell network operations in that region and focus on its European business. (See TeliaSonera to Quit Eurasia, Focus on Europe.)

Like Telenor, TeliaSonera has been spooked by recent economic turmoil and its reputation has also been tarnished by allegations of regional corruption.

— Iain Morris, , News Editor, Light Reading