VimpelCom makes $1bn loss as Uzbek corruption case escalates

By bne IntelliNews November 6, 2015

Jacopo Dettoni in Almaty -


Russian telecom VimpelCom reported a $1bn net loss in the third quarter of 2015 after it made a $900mn provision for alleged wrongdoings in Uzbekistan, the company announced on November 6. The quarterly results come at the end of one of VimpelCom’s most troublesome weeks, as its Uzbek troubles first prompted a shake-up in the board of its second largest shareholder, Telenor; then led to the arrest of a former CEO in Oslo, and finally it was hit by a class action lawsuit in the US.

The quarterly loss “reflects exceptional costs of $1.2bn, the principal component of which is a provision of $900mn in connection with the investigations by the SEC, DOJ [Department of Justice] and OM  [the Dutch Public Prosecution Service] relating to our business in Uzbekistan”, CEO Jean-Yves Charlier said in a statement. VimpelCom had announced the provision on November 3, which sank the company’s ADRs listed on the Nasdaq, which lost more than 8% between November 3-4, before bouncing back on November 5.

“At this stage nobody cares about the results any more,” Alexander Kazbegi, head of telecoms and transport research at Renaissance Capital, tells bne IntelliNews. “The most important thing is the provision and what is going to happen afterwards,” Kazbegi adds, referring to the final outcome of the ongoing investigations in the US and Europe.

VimpelCom, which is controlled by Russian oligarch Mikhail Fridman and its Alfa Group, is under investigation in the US, where the company is listed, and the Netherlands, where the company is headquartered, on corruption and money laundering charges related to its operation in Uzbekistan – its local brand Beeline is the largest mobile operator in the country with a subscriber base of 10.6mn clients at the end of 2014. It has denied any wrongdoing.

VimpelCom entered the Uzbek market in 2006, when it acquired Unitel, then the second largest Uzbek cellular operator, for $200mn, plus approximately US$7.7mn in debt, according to company figures. Successive investigation by American and European authorities alleged that VimpelCom, as well as its two foreign competitors in the Uzbek market, Nordic TeliaSonera and Russian MTS, paid hundreds of millions of dollars to shell companies linked to Gulnara Karimova, the daughter of President Islam Karimov, in order to secure wireless spectrum in the country and safeguard their interests in the country.

VimpelCom alone supposedly transferred $133.5mn to Karimova’s Gibraltar-based company Takilant between January 2006 and October 2011, according to figures disclosed by the US State Department in an official lawsuit filed before a court in New York in June.

A $30mn payment made to a bank account held at Swiss bank Lombard Odier also caught the attention of Norwegian authorities, which eventually opened a case against former CEO Jo Lunder, a Norwegian citizen himself, and took him into custody on the evening of November 3 on corruption charges. The payment, made during Lunder’s tenure as CEO, was officially aimed at buying from Takilant some reports on the Uzbek market, which turned out to have little, or no original content (it was mostly copies of Wikipedia pages and other open source online material), the US State Department claimed, beefing up suspects of bribery.

“He has not had any reason to believe that this meant some corrupt payment,” Lunder’s lawyers told the Norwegian press after his arrest, denying any wrongdoing.

Lunder’s arrest came just a few days after Telenor’s chairman, Svein Aaser, resigned on October 30, citing that the VimpelCom case has been demanding and complex to manage. The company has already announced its intention to disinvest  its 33% stake in VimpelCom, following on the heels of TeliaSonera, which also disclosed its intention to pull out of troublesome Eurasian markets, including Uzbekisan and Azerbaijan. These announcements have been seen by many as a way for both companies to show US and European prosecutors their commitment to start over with a clean sheet and thus, eventually, limit any potential fine.

“Just think of how this kind of operations work,” Peter Utterström, a leading expert on US corruption law, told Swedish newspaper Svenska Dagbladet on October 5. “Normally companies go public when the sale is completed. But they [TeliaSonera] just held a press conference and said ‘Now we sell’,” he added, hinting that the board wants to show the US Department of Justice its real commitment to cleaning up the company and avoid any more allegations linked to its Eurasian operations. The board of Telenor announced its decision to sell its stake in VimpelCom in a similar fashion a few days later.

With American and Dutch prosecutors proceeding against VimpelCom, as well as TeliaSonera and MTS, investors are now holding their breath waiting to understand the real magnitude of the potential fines.

“For Telenor and TeliaSonera it’s a huge reputational issue [as the Norwegian and Swedish governments, respectively, are their main shareholders] and they are pulling out for that [reason],” Kazbegi’s Renaissance said.

“On the other hand, for the Russians [VimpelCom and MTS] is less of a reputational issue, but it doesn’t mean they will not be affected by possible fines. VimpelCom and MTS both have shares listed in the US (on the Nasdaq and NYSE, respectively). If they want to keep an American presence, and MTS especially has many North American pension funds among its shareholders, I think they will likely have to settle.”

VimpelCom’s potential financial damages may be further inflated by a class lawsuit filed in New York by law firm Pomerantz on November 4, just a few hours Lunder’s arrest in Oslo.

“The complaint alleges that […] defendants [VimpelCom and certain of its officers] made materially false and misleading statements regarding the company’s business, operational and compliance policies,” a statement by Pomerantz reads.

“Specifically, defendants made false and/or misleading statements and/or failed to disclose that: VimpelCom had paid tens of millions of dollars to a company controlled by Gulnara Karimova, daughter of the president of Uzbekistan; the payments to Karimova were unlawful bribes intended to secure VimpelCom’s access to Uzbekistan’s telecommunications market; and as a result of the foregoing, defendants’ statements about VimpelCom’s business, operations, and prospects were false and misleading and/or lacked a reasonable basis.”

Meanwhile, Telenor appointed consulting firm Deloitte to launch a review over the way the group’s management handled its 33% ownership in VimpelCom, the company said in a statement on November 5.

“The review will focus on Telenor’s handling of its ownership in VimpelCom which covers the Telenor nominees on the VimpelCom Supervisory Board and Telenor’s follow-up as a shareholder,” the statement reads. “In addition the review will cover actions and decisions by Telenor nominees and Telenor employees in relation to VimpelCom’s investment in Uzbekistan.”

Telenor acquired its VimpelCom stake in 1999. The company has invested NOK15bn ($1.76bn) in VimpelCom and received about NOK20bnbn  in dividends, according to company’s figures. 

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or 12 months full access inc. Magazine and Weekly Newspaper for just $119/year.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

IntelliNews Pro subscribers click here

Thank you. Please complete your registration by confirming your email address. A confirmation email has been sent to the email address you provided.

Thank you for purchasing a bne IntelliNews subscription. We look forward to serving you as one of our paid subscribers. An email confirmation will be sent to the email address you have provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

If you have any questions please contact us at

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

IntelliNews Pro subscribers click here

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

If you have already registered, enter the information below with the same email you used previously and you will be granted immediate access.

Thank you. Please complete your registration by confirming your email address. The confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.