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Financial

Brrr! Russian Court Freezes Vimpelcom Shares

A Russian court has declared that Norway's Telenor Group (Nasdaq: TELN) is not allowed to trade its shares in Vimpel-Communications (NYSE: VIP), Russia's second largest mobile operator. Telenor says the controversial ruling threatens future funding for telecoms infrastructure projects all over Russia. (See Telenor Opposes VimpelCom Decision.)

A Siberian appeals court in Omsk ordered the arrest of Telenor's shares in Vimpelcom, which amount to a 29.9 percent stake, and the shares belonging to Altimo, the telecoms investment arm of Russian conglomerate Alfa, amounting to a 44 percent stake. The case which prompted the court's decision was brought by a British Virgin Island-registered company called Farimex Products, which owns hardly any (0.002 percent) of Vimpelcom at all.

The development is controversial because Altimo used its entire interest in Vimpelcom as collateral for $2 billion worth of loans from Deutsche Bank. [Ed. note: D'oh!] The bank can't collect if Altimo does not make the loan repayments, and those repayments are tied to Altimo's ability to sell its Vimplecom shares whenever it wants.

But the rest of Russia could pay for the court's decision. If telecoms operators in the country can't borrow from international banks as easily, then infrastructure buildouts will be stalled. Vimpelcom is the second largest mobile operator in Russia and a top mobile operator in emerging markets by revenue. (See Top Ten: Emerging Markets Carriers, Russia's VimpelCom Doubles Q1 Profits, VimpelCom Buys Rest of Corbina, and Vimpelcom, Golden Complete Merger.)

Telenor says it learned that its Vimpelcom shares would stop trading from a Farimex Products press release. "It is an outrageous decision, which we intend to overturn using all available means," said Jan Edvard Thygesen, executive VP and head of Telenor's operations in Central and Eastern Europe.

The court decision to halt trading of Telenor's and Altimo's shares in Vimpelcom appears to be linked to a long-running dispute between the shareholders over the acquisition of a small Ukrainian mobile operator, URS Wellcom. Telenor did not support Vimpelcom's acquisition of URS Wellcom two years ago and the deal was delayed for a year.

In August, Farimex won a ruling from another Siberian court (this one in Khanty-Mansiysk) that found Telenor solely liable for Vimpelcom's late entry into the Ukrainian mobile market and ordered Telenor to pay $2.8 billion to Vimpelcom in damages. Telenor has appealed this decision, which it finds "absurd," and is due to have its appeal heard in the Omsk court on November 18.

Telenor suggests that the court decision to arrest the shares actually has nothing to do with the case involving the Ukrainian mobile operator acquisition, and it blames Alfa's "collusive actions" for the frozen shares.

"We see absolutely no reason for the Omsk court to arrest Telenor's VimpelCom shares ahead of the scheduled appeals hearing," said Thygesen. "The timing of the arrest and the inclusion of Altimo's shares strongly suggests that there were other motives for this arrest, and we believe this is yet another of Alfa's collusive actions."

Thygesen continues: "There are already media reports that this is meant to prevent Alfa's creditors from getting access to Alfa's shares. If that is the case, it could limit other Russian companies' ability to obtain loans from international banks for many years to come. We feel confident that Russian authorities will look into the matter immediately."

— Michelle Donegan, European Editor, Light Reading

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