UK court starts Cukurova on race to reclaim Turkcell stake

By bne IntelliNews July 10, 2013

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A British court has set the price at which Turkish holding company Cukurova Group can buy back a controlling stake in Turkcell at $1.56bn. The ruling offers fresh hope of an end to the long-running dispute between Cukurova and Russia's Altimo over ownership of Turkey's largest mobile operator.

The UK Privy Council ruled on July 9 that Cukurova can buy back the 13.8% stake - which offers control over Turkcell - from Altimo for $1.57bn. The payment must be made within the next 60 days.

The stake was originally held by Cukurova, the holding company of Turkish businessman Mehmet Ali Karamehmet, but was seized by Altimo when Cukurova defaulted on a $1.35bn loan. It's a tactic that the Russian telecoms holding - controlled by rapacious oligarch Mikhail Fridman - has used to wrestle control of companies before.

In January, the Privy Council - which made the judgement since Cukurova is registered in the British Virgin Islands - had ruled Altimo had been entitled to appropriate the shares at the time, but that Cukurova should be allowed the chance to buy them back. However, it stalled on naming a price for the deal.

Its July 9 ruling setting a price of $1.56bn - representing the original loan plus interest - is a clear boost for the Turkish holding, and the hopes of minority shareholders of a resolution. Cukurova had been pushing for the deal for relief from forfeiture to be concluded at Libor +1%, which translates as a total of $1.6bn to take the stake back. Alfa was pushing for at least Libor +8%, which would total $2.9bn.

However, it's not clear whether Cukurova will be able to make the purchase. In May, it had 45 of its subsidiaries seized by the Turkish authorities over outstanding debts, while in March it was ordered to pay another Turkcell shareholder - Sweden's TeliaSonera - close to $1bn over another dispute. Sources however say Karamehmet is ready to do whatever he must to reclaim the shares, and said in March that Cukurova was in talks with banks including Standard Bank and Sberbank on borrowing up to $3bn.

"Cukurova has a chance to pay this amount but it has to move fast," suggest analysts at VTB, noting it needs to pay off both TeliaSonera and the Turkish Savings Deposit Insurance Fund in order to pledge the Turkcell stake against the loan. A notable plus for the effort is that Ankara is known to be keen to avoid Russian control over the country's largest mobile operator.

Cukurova has not commented on the ruling, but Altimo vice president Evgeny Dumalkin said in a statement: "This decision specifics the time limit to finally clarify shareholders' status in Turkcell."

The ongoing dispute has created a deadlock at Turkcell, where AGMs have been repeatedly cancelled since Altimo and Cukurova failed to agree on a proxy to represent their joint stake. As a result, the company has been unable to approve its 2010-2012 financial accounts, and no dividends have been paid to minority shareholders. Following the announcement of the ruling, Turkcell shares outperformed the Istanbul index with a rise of 2.2%.

However, Erste analysts warn that the issue could still be some way from a resolution. "There is no change in the shareholder structure and we therefore still see the dividend payment as uncertain. We still see a possibility of Alfa and Cukurova not agreeing on a dividend or the BoD structure."

VTB is more optimistic, suggesting that whatever the result, a conclusion now looks close for minorities. "If Cukurova manages to repay its debt plus interest, than a dividend could be announced and paid shortly, as there would be no impediment anymore, in our view. Given that the amount is on the smaller side, there is a chance," the analysts write. "If Cukurova does not manage to pay, we still think the dividend would come this year," they add, "although Altimo and the Turkish government would have to sort out change of control issues."

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