News broke this week signaling that both sides remain deeply at odds
Despite recent reports indicating that Norway’s Telenor was close to settling its longstanding dispute over multi-billion-dollar telecom assets in Ukraine and Russia with Moscow-based Alfa group, news broke this week signaling that both sides remain deeply at odds.
On Sept. 26, the Vedomosti Russian business daily cited Telenor’s CEO of operations in Russia as saying that his company would no longer object to earlier disputed expansion plans in Ukraine by Russian mobile operator Vimpelcom, in which both are shareholders. The announcement was interpreted by many analysts in Ukraine and Russia as a signal that the former-partners-turned-foes were close to settling a dispute for control over Vimpelcom, and mobile communications assets in Ukraine; namely, leading operator Kyivstar.
But days later, Telenor issued a statement accusing an Alfa subsidiary of, yet again, sabotaging a Kyivstar shareholder meeting.
“Alfa has once again chosen to boycott a legitimate Kyivstar shareholder meeting despite the fact that there are no court orders or any other legal obstacles preventing Alfa from attending such a meeting,” said Jan Edvard Thygesen, Executive Vice President and head of Telenor’s operations in Central and Eastern Europe in an Oct. 1 statement.
According to Thygesen, Alfa’s non-attendance was a clear violation of an Aug. 1 US arbitration ruling that ordered Alfa to attend Kyivstar board and shareholder meetings. The Norwegian company said that it would bring this latest violation to the attention of appropriate authorities.
The conflict between Telenor and Alfa erupted in 2005 when Vimpelcom, where Alfa is a majority shareholder and has more influence, bought a Ukrainian mobile communications company called Ukrainian Radio Systems (URS). Telenor, itself with a blocking stake in Vimpelcom, objected to the purchase, arguing that both partners were already present on the Ukrainian market through a leading Ukrainian mobile communications company Kyivstar (Telenor is a majority shareholder in Kyivstar; Alfa has a blocking stake through its subsidiary Storm).
Telenor objected, arguing that the $200 million purchase price for URS was too high and there was no objective reason to have another mobile communications company in Ukraine along with Kyivstar.
Both sides have been locked in seesaw lawsuits and fierce media campaigns ever since.
The conflict led to a court ruling earlier this year that banned Kyivstar from disclosing its financial information. Kyivstar, the first Ukrainian company to tap into the Eurobond debt market, nearly defaulted on a Eurobond placement as a result. In May, however, Kyivstar agreed with bondholders to delay repayment, offering an additional 0.25 percent, or $1.1 million payment to the bonds’ face value.
A New York arbitration proceeding this August ruled in favor of Telenor, upping the ante in the longstanding legal battle.
The court ordered Alfa’s subsidiary, Storm, to divest its shares in leading Ukrainian mobile operator Kyivstar within 120 days, or sell shares in competing mobile companies.
Back then, Telenor officials expressed hope that the Aug. 1 court decision could put an end to a nearly three-year seesaw legal conflict. Yet Alfa, controlled by Moscow-based billionaire Mikhail Fridman, appeared not to be shaken by the court ruling. The company struck back, arguing that the NY court ruling holds no jurisdiction in Ukraine, where both companies are fighting to control Kyivstar, Ukraine’s mobile services leader in terms of subscribers.
Eric Franke, a former CEO of Ukraine’s other mobile communications leader (recently re-branded to its Russian parent company’s name MTS but earlier called UMC), said that the whole situation “would not likely be resolved without the parties making big concessions.”
Franke, who returned to Ukraine as a consultant after working for the Moscow-based Sistema holding, said that the two companies – Alfa and Telenor – have different end goals and aren’t able to find a middle ground.
Alfa, a business holding that placed bets across the board, buying up stakes in mobile telecommunications companies in Russia, Ukraine, Central Asia and Turkey, sees only added value in having two competing mobile communications companies in Ukraine.
“As for Telenor, they have a different perception [of the situation], and they would like to consolidate their activities”, said Franke.
Through Storm, Alfa owns a 43.5 percent stake in Kyivstar and 42.4 percent of Vimpelcom. Telenor holds a 56.5 percent stake in Kyivstar and 29.9 percent of Vimpelcom.
In 2006, Kyivstar’s subscriber base grew by 54 percent to 21.5 million, reaching 44 percent of the total Ukrainian subscriber base and 31 percent of the consolidated mobile subscriber base for Telenor, itself majority owned by the Norwegian government.
Kyivstar posted a 51 percent year-on-year increase in net revenues last year, generating $1.7 billion. In an offer to settle the dispute by buying out Alfa’s stake in Kyivstar, Telenor valued the company to be worth about $5 billion.
