Ankara threatens to step into Turkcell standoff

By bne IntelliNews May 24, 2013

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Turkey on May 23 threatened again to intervene in the long-standing ownership spat at mobile operator Turkcell. The claim from Ankara that it may step in came a day after the company failed to hold its AGM due to the standoff.

In a TV interview, Deputy Prime Minister Ali Babacan said the government would prefer the shareholders to agree among themselves, but that the capital markets board could take steps if they failed to do so. "We will not allow Turkcell to be without a management board," he said, according to Reuters. "If they don't [resolve the issue] the state will certainly intervene until the partners agree."

Turkcell failed to convene its AGM because of a lack of quorum, as Russia's Altimo and Turkey's Cukurova - the warring shareholders - failed to agree on a proxy to represent their joint stake in the holding behind the telecom. That left the company unable once again to approve its 2010-2012 financial accounts, thus preventing minority shareholders from being paid several years of delayed dividends. Turkcell shares were down 1.28% in mid-morning trade, having dropped more than 2% on May 22.

Analysts had hoped earlier this year to see the dispute finally put to bed, after the arguments of Altimo and Cukurova went to a final hearing before the Privy Council of the United Kingdom - which is qualified to rule due to Turkcell Holding's base being in the British Virgin Islands - in January. The court found that the Turkish company should be allowed to buy back the 13.8% stake at the centre of the tussle, which was handed to Altimo in 2005 in lieu of a unpaid $1.7bn loan - a tactic that has been used more than once in other corporate fights by Altimo's beneficial owner, rapacious oligarch Mikhail Fridman.

However, the court is yet to give a final ruling on the amount Cukurova should pay to settle its debt and retake the stake - which due to the shareholding structure offers control of Turkcell - with the two parties' valuations showing wide discrepancy. In the meantime, the Turkish company has also met numerous obstacles to its bid to raise cash, with legal challenges popping out of the woodwork in the US, and 45 of the group's companies seized by Turkish authorities last week due to unspecified debts. Following the failed AGM, Altimo retorted that the deadlock would only be resolved after the court issues a final pricing decision.

At the same time, it has long been understood that Ankara is unlikely to tolerate Russian control over the country's largest mobile operator. Analysts at VTB Capital suggest that Ankara's reaction to the latest failure to hold the AGM is one of three major unknowns, but add that they are confident a settlement is on the way.

"First, what happens to Cukurova's Mehmet Karamehmet, who is being deprived of assets against loans in Turkey?" they ask. "Second, what the UK Privy Council decides regarding the amount (and, importantly, timing) that Cukurova has to pay Altimo for relief from forfeiture of shares. Cukurova is unlikely to be able to pay up, based on the US court decision, so the faster this happens the better, as we would know what the terms are that Altimo and the Turkish government have agreed on. Third, the actions of the Turkish government with regard to another AGM failure, if any. We retain the view that the conflict will be resolved and dividends paid in 2H13."

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