MOSCOW: Vimpelcom is in talks with Algerian officials over the fate of the north African nation’s top mobile phone operator Djezzy that Algiers wants to nationalize and the Russian firm wants to control.
Djezzy is the most lucrative asset of Egyptian tycoon Naguib Sawiris’ Orascom Telecom, which Vimpelcom intends to buy control of as part of a $6.6 billion international acquisition.
Following are possible scenarios:
Algeria Nationalizes Djezyy
Its probability is likely.
Algeria has been determined to take Djezzy away from Orascom for months, and Vimpelcom’s CEO Alexander Izosimov said on Wednesday he would consider selling Djezzy to the Algerian state "at a fair price."
But the sides seem to have opposing views on valuation — a stumbling block that will have to be removed if a deal is to be agreed.
"Izosimov admits (that Vimpelcom may sell Djezzy to Algeria) but asks an absolutely unrealistic price — $7.8 billion — while the Algerian government has so far being saying it would buy it for $2.5 billion. That is a very big gap," says Renaissance Capital analyst Alex Kazbegi.
Should Vimpelcom be offered a price acceptable to its co-owners — Russian billionaire Mikhail Fridman and Norway’s Telenor — the cash could be distributed as a business investment or as dividends and the deal would go ahead.
But Algeria has already told Orascom that it has first refusal on whether or not to buy Djezzy — the grounds for rejecting earlier attempts to sell to South Africa’s MTN — and may persist with its nationalization plan, sidelining Vimpelcom.
Whole Deal Falls Through
Its probability is high
Vimpelcom’s agreed deal for Sawiris’ Weather Investments included a number of conditions — but retaining control of Djezzy was not one of them.
Even so, Vimpelcom’s shareholders could yet rethink the entire deal if they feel they are being short-changed by Algeria, and would not face any break fees if they walked away.
However, nobody expects them to go down without a fight.
Alfa Group billionaire Mikhail Fridman is a tough operator who waged lengthy corporate wars against Telenor over Vimpelcom and BP over its Russian joint venture TNK-BP earlier this decade.
Vimpelcom could even appeal to international law to fight for Djezzy.
"Vimpelcom believes there is a legal basis to appeal the decision (if Algeria simply takes Djezzy away) — there is a clear path for international arbitration," said Elena Mills at Alfa Bank.
This scenario would be a disaster for Naguib Sawiris, said Tim Daniels at Olivetree Securities in London, due to his debt of nearly $13 billion across Wind and Orascom.
"If Vimpelcom walks away and Algeria takes Djezzy, Sawiris loses half his EBITDA," he said.
Analysts say Sawiris may have to then sell off Orascom’s assets piece by piece to pay off debt.
"The clock would start ticking for a year and a half to two years, when lots of debt comes due in 2013," said CI Capital analyst Amr Elalfy.
Algeria Allows Vimpelcom to Keppt Djezzy
Its probability is highly unlikely
Although Russian President Dmitry Medvedev and Izosimov failed on Wednesday to get a public pledge from Algeria that Djezzy would be part of the Russian firm’s deal with Sawiris, Vimpelcom may still be able to persuade Algerian authorities to allow it to keep and run the company.
The scenario is unlikely given Algeria had previously rejected approaches from Egyptian President Hosni Mubarak and South African President Jacob Zuma to sanction the sale of Djezzy to South Africa’s MTN.
The government has said it would make an offer for the unit within months.
"You never know with third party talks. The Russian government could offer something to the Algerian government — like financial support in the next elections — and Alfa could offer something to the Russian government off-stage. So far it does not seem to have worked," RenCap’s Kazbegi says.
