A US federal court has ordered Russia-based Alfa Group to comply with a previous arbitration ruling awarded to Norwegian telecom giant Telenor
A US federal court has ordered Russia based Alfa Group to comply with a previous arbitration ruling awarded to Norwegian telecom giant Telenor in the two companies’ continuing conflict over Ukrainian mobile operator Kyivstar.
The Nov. 2 court decision was heralded as a success by Telenor, which has been engaged in legal battles with minority shareholder Alfa Group for the past three years.
The New York Federal Southern District Court granted Telenor’s petition for enforcement of its final arbitration award against Storm, an Alfa Group subsidiary, and denied Storm’s motion to vacate the award.
Alfa Group and its subsidiaries are controlled by Moscow-based billionaire Mikhail Fridman, a native of Lviv, western Ukraine.
The most recent ruling upholds a New York arbitration proceeding from last August, which ordered Altimo, Alfa’s telecom arm, to either sell its stake in Ukrainian mobile operator Kyivstar, or dispose of stakes higher than 5 percent in competing wireless operators Turkcell/Astelit and Ukrainian High Technologies within 120 days of the date of the award.
Alfa struck back, arguing that the NY court ruling holds no jurisdiction in Ukraine, where both companies are fighting for control of Kyivstar, Ukraine’s mobile services leader in terms of subscribers.
This decision confirms that Storm must abide by the earlier arbitration proceedings.
The award also requires that Storm and its Alfa affiliates begin attending Kyivstar shareholder meetings, withdraw their various lawsuits in Ukraine and cease filing additional lawsuits.
Alfa did not attend two scheduled Kyivstar shareholders meetings Nov. 1.
“This is the third Extraordinary General Meeting of Shareholders of Kyivstar in a row that has been totally ignored by Storm after the New York Arbitration Award of Aug. 1, 2007,” said Trond Moe, Head of Telenor’s representative office in Ukraine.
In the ruling, Judge Gerard E. Lynch of the New York district court wrote that Storm and its corporate owners continue to deliberately breach their carefully-negotiated agreement with Telenor, in which Alfa guaranteed that it would abide by the ruling of a neutral international arbitration forum.
“Central to the bargain was an arbitration clause providing for the resolution of disputes in a fair, neutral international arbitration forum,” Judge Lynch wrote in his conclusion.
“Storm provided every conceivable assurance to Telenor that its signatory officers were empowered to bind it to that agreement,” Judge Lynch wrote.
“This decision shows that Alfa must respect the agreements they negotiate and sign,” said Telenor’s Executive Vice President and Head of Central and Eastern Europe, Jan Edvard Thygesen.
“This court decision should serve as a demonstration to any future Alfa/Altimo business partners, proving that they show no respect for internationally established business practices and ethics,” Thygesen said.
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.
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. Telenor does not support this strategy.
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.
