Russian duma wades into VimpelCom fight

By bne IntelliNews September 6, 2012

bne -

Telenor's problems with its investment into the Russian mobile phone sector never seem to end. In the latest headache, Duma deputies sent a letter on September 5 to Prime Minister Dmitry Medvedev calling on the government to force the Norwegian company to abide by anti-trust regulations and refrain from increasing its stake in VimpelCom, the second largest mobile phone operator in the country.

The letter, signed by heads of the committees on property, civil, criminal, and arbitration law, and on culture and information policy, seeks to prevent Telenor from acquiring a further 3.5% stake in VimpelCom, according to Kommersant. The move is the latest in a long running battle between the Norwegian state-controlled company and fellow VimpelCom shareholder Altimo, and looks likely to be encouraged by Altimo's ultimate beneficiary, Mikhail Fridman, who has proved himself a past master at leveraging administrative power against foreign partners.

The main thrust of the letter seeks to have Telenor forced to abide by a recent ruling from Russia's anti-monopoly office FAS, which demands that Telenor keep parity with Russian strategic shareholders. The ruling came after FAS - and, probably most notably, Fridman's Alfa holding - protested Telenor's acquisition of an 11% stake in VimpelCom from Naguib Sawiris's Weather Investments in February.

That deal saw Telenor increase its stake to 39.5%. Altimo achieved parity in mid-August meanwhile, with the purchase of a 14.8% stake from the same seller giving it 40.5%. However, according to the terms of the earlier Telenor deal, Weather has an option - which it has announced it intends to execute - to sell another 3.5% in VimpelCom to the Norwegians, which would give Telenor 43%.

In response, however, Telenor has claimed that Altimo's stake is in effect 46.5%, claiming that a 6% stake officially held by Ukrainian businessman Victor Pinchuk is in reality controlled by the Russian stakeholder.

"The ... deal contradicts not only the interests of domestic shareholders of Russia's VimpelCom, but also the interests of the Russian Federation," the State Duma members said, reports Prime. Telenor meanwhile says it has done nothing wrong. "Telenor acts in accordance with the Russian laws. We are holding a meaningful dialogue with the Federal Antimonopoly Service," a company representative told Prime.

The deputies' letter also reportedly claims that the deal would bring the Norwegian government close to a majority stake in VimpelCom, due to an additional 2% stake held by the country's state pension fund. The deputies point out that under Russian law, if the Norwegian government wants to control a Russian company then it needs to seek approval from the Duma.

The move is typical of the schizophrenic attitude of the Russian government towards foreign investors and brings to mind the fight currently enmeshing Russia's other big mobile phone company, MTS, in Uzbekistan. The government in Tashkent pulled the company's licence and is in the process of destroying a $1bn business after the president's daughter, Gulnara Karimova, reportedly decided to take back control of the company she sold to MTS for $500m a few years ago.

Looking at the bigger picture, the whole VimpelCom debacle is another self-imposed black eye for the Russian government. President Vladimir Putin has launched a series of reforms to move Russia up the ranking of the World Bank's Doing Business index from the current 120th place and into the top 20, but this ongoing scandal shows that if you happen to be successful in Russia then you are bound to have problems.

Meanwhile, analysts at Uralsib point out that the news is only likely to increase the misery of minority shareholders in VimpelCom, who have been cut off from dividend payouts since last year, and that the stock will remain volatile as the argy bargy continues. "The letters confirm that the shareholder conflict has yet to be resolved, and the news could generate further volatility in VimpelCom, particularly in light of the potential commencement of converting preferred shares into commons by some shareholders," they write.

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