Bloomberg News

Telenor Ends Conflict Over VimpelCom, Seeks New Partner in India

February 20, 2012

Feb. 16 (Bloomberg) -- Telenor ASA ended a conflict in its foreign holdings by boosting its stake in Russian phone company VimpelCom Ltd., and may have started another by saying it will seek compensation for damages from its partner in India.

The Nordic region’s largest phone company bought a block of 234 million preferred VimpelCom shares from Egyptian billionaire Naguib Sawiris’s investment company Weather II for $374.4 million and said yesterday it withdrew all claims in arbitration against Russia’s Alfa Group and VimpelCom. Telenor’s share rose as much as 4.3 percent in Oslo. VimpelCom shares rose as much as 6.5 percent in New York, the most since May 2010.

Telenor said in January 2011 that it was unfairly denied its preemptive right to buy more shares to maintain the size of its stake when VimpelCom merged with Sawiris’s Wind Telecom SpA through a share issue to Wind. The Norwegian company opposed the merger plan, but agreed to support VimpelCom after shareholders voted to acquire the Wind assets.

“It’s undoubtedly a near-term positive, mainly because it means they’re only going to be paying $374 million to maintain their voting interest instead of $2.8 billion which they might have had to spend to exercise their preemptive rights in the arbitration case,” said Barry Zeitoune, a London-based analyst with Berenberg Bank.

The preferred shares don’t come with any economic rights and will disappear if the owner doesn’t pay the prevailing VimpelCom share price before April 2016, Zeitoune said. “What they’re effectively doing is postponing the payment rather than eliminating it altogether,” he said.

Happy Solution

Telenor said its voting share in VimpelCom will be 36.36 percent, subject to adjustment arising from “certain put and call arrangements.” The Norwegian operator will also work to expand the VimpelCom board to eleven members from nine directors currently.

“This transaction takes Telenor to approximately the same voting position as a successful outcome of the arbitration process would have achieved, and is therefore a commercial solution we are happy with,” Telenor Chief Executive Officer Jon Fredrik Baksaas said. The end to the arbitration “will prevent further dilution of the VimpelCom shareholders, and it will enable a more normal corporate governance situation,” he said.

Telenor raked in 4.56 billion kroner ($788 million) in profit from associated companies, mainly VimpelCom, last year. The company hasn’t decided yet whether to convert their preferred shares into ordinary stock, Dag Melgaard, a Telenor spokesman, said by phone from Oslo.

“At the moment, voting rights in VimpelCom are our priority and not the dividends,” he said. Telenor may decide “at any time” whether to buy another 71 million of preferred shares in which would boost its voting stake to 39.8 percent, Melgaard said.

Yearlong Conflict

While the VimpelCom agreement settled a yearlong conflict in one of its foreign ventures, Telenor set the stage for another struggle yesterday, saying it would seek compensation from Indian partner Unitech Ltd. for the breach of warranties related to the cancellation of joint venture Uninor’s mobile licenses by India’s Supreme Court.

“The legality and validity of the licenses was a fundamental term of the share subscription agreement between Telenor Group and Unitech Limited,” Telenor Group General Counsel Paal Wien Espen said in a statement.

Telenor entered India by buying 67.25 percent of Unitech Wireless, an arm of Unitech, which still owns the remainder. Their Uninor wireless brand opened to customers in December 2009, using permits secured by Unitech. The Indian government this month canceled 122 wireless licenses, including 22 to Uninor, following a court investigation into their award. Telenor wrote down $721 million on the venture.

Seeking New Partner

Telenor will seek a new partner to develop mobile services in India, it said. The Norwegian company has invested 8.9 billion kroner for its stake in Uninor, and is also fully guaranteeing 8.1 billion kroner of short-term debt.

Unitech Ltd., India’s third-largest developer by value, hasn’t breached the warranties of its agreement with Telenor, Nirjhar Goel, Unitech’s nominee on Uninor’s board said in an e- mail.

“At best, Telenor can claim damages from the government under the investment bilateral treaty,” he said.

Telenor shares rose 3.2 percent to 100.8 kroner at the 5:30 p.m. close in Oslo, valuing the company at 162 billion kroner.

--With assistance from Andrew Macaskill in New Delhi and Halia Pavliva in New York. Editor: Kim McLaughlin

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net


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