Bloomberg News

VimpelCom Slides as Expansion Erodes Earnings: Russia Overnight

March 13, 2012

Jo Lunder, chief executive officer of Vimpelcom Ltd., said Vietnam and Cambodia have proven less profitable than anticipated as VimpelCom belatedly entered a market already loaded with operators. Photographer: Denis Doyle/Bloomberg

Jo Lunder, chief executive officer of Vimpelcom Ltd., said Vietnam and Cambodia have proven less profitable than anticipated as VimpelCom belatedly entered a market already loaded with operators. Photographer: Denis Doyle/Bloomberg

VimpelCom Ltd. (VIP) tumbled the most in three months as the U.S.-listed Russian mobile phone provider’s first-ever quarterly net loss boosted concern its expansion into foreign markets is costing too much money.

Russia’s third-largest wireless company by subscribers sank the most since Dec. 8 in New York after reporting a $386 million loss in the last three months of 2011, and a $527 million impairment charge on operations in Vietnam and Cambodia. Futures (VEA) expiring in March on Moscow’s RTS (RTSI$) Index gained 1.2 percent in U.S. trading to 175,100.

VimpelCom boosted debt last year to merge with Italy’s Wind Telecom SpA, giving the company 200 million customers worldwide. Vietnam and Cambodia have proven less profitable than anticipated as VimpelCom belatedly entered a market already loaded with operators, Chief Executive Officer Jo Lunder said yesterday. AFK Sistema, a controlling shareholder in Russia’s biggest mobile operator OAO Mobile TeleSystems, has also had difficulties, losing most of its Indian licenses last month.

“These markets are going to become even more competitive and as an investor I don’t see this as a good growth area,” Hawk Sunshine, who manages $300 million of assets -- including VimpelCom stock -- at brokerage IFC Metropol, said by phone from Moscow yesterday. “They’ve got to concentrate on all these markets they’re in and they are spreading themselves too thin.”

20 Countries

VimpelCom was formed after Fornebu, Norway-based Telenor ASA (TEL), the biggest Nordic phone company, and Russia’s Alfa Group agreed in 2009 to merge stakes in Moscow-based OAO VimpelCom and Ukraine’s ZAT Kyivstar. The now Amsterdam-based company doubled its mobile-customer base in 20 countries with the purchase of assets from Egyptian billionaire Naguib Sawiris in 2010, a deal valued at around $6.5 billion at the time.

Dag Melgaard, a spokesman for Telenor -- VimpelCom’s biggest shareholder which objected to the Sawiris deal and began arbitration against fellow shareholders -- said last month that the company should shun more acquisitions in favor of boosting the efficiency of its existing operations.

VimpelCom shares slipped 4.4 percent to $11.30 yesterday in New York, one of three decliners on the Bloomberg Russia-U.S. 14 Index (RUS14BN) of Russian companies traded in the U.S.

The gauge climbed 1.2 percent yesterday to 112.22, as data showing U.S. retail sales rose by the most in five months in February bolstered the outlook for global energy demand, spurring a 0.4 percent advance in crude in New York to $106.71 a barrel. The Standard & Poor’s GSCI index of 24 raw materials added 0.7 percent to 708.93.

‘Usually Risky’

As well as in Russia and countries of the former Soviet Union including Georgia and Kazakhstan, VimpelCom offers wireless, fixed-line and broadband services in parts of Asia such as Pakistan and Bangladesh, in Zimbabwe and the Central African Republic and in Canada and Italy, according to its website.

Vimpelcom, now the world’s sixth-largest wireless operator by customers, says on its website more than 70 percent of its subscribers are outside of Russia.

“Expansion into foreign markets without a strong local partner is usually risky,” said Iouli Matevossov, a senior analyst at Alfa Bank in Moscow who has an outperform rating on the stock, indicating he expects it to gain more than the market or its sector. “It’s one thing to invest in the markets of the former Soviet Union, which are similar to the Russian market, and another to explore foreign markets where there is tough local competition.”

Russia ETF Gains

Brent oil for April settlement gained 0.7 percent to $126.22 a barrel on the London-based ICE Futures Europe exchange, while Urals crude, Russia’s chief export blend, gained 0.8 percent to $124.60.

The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, climbed 2.1 percent to $33.14. The RTS Volatility Index (RTSVX), which measures expected swings in the index futures, dropped 1 percent to 33.75 points.

The 30-stock Micex gained 0.5 percent to 1,611.88 in Moscow yesterday, while the RTS (RTSI$) added 0.9 percent to 1,729.91.

American depositary receipts of OAO GMK Norilsk Nickel (NILSY), Russia’s biggest mining company, climbed 2.8 percent to $19.88 in U.S. trading yesterday. The shares added 0.9 percent to 5,786 rubles, or the equivalent of $196.54, in Moscow. One ADR represents one-tenth of an ordinary share.

Vekselberg Resignation

United Co. Rusal may consider selling its 25 percent stake in Norilsk following Victor Vekselberg’s resignation as chairman of the world’s largest aluminum producer, according to UralSib Financial Corp. Vekselberg stepped down on March 12 over Rusal Chief Executive Officer Oleg Deripaska’s refusal to sell out of Norilsk.

Vekselberg, Rusal’s third-largest shareholder, has sided with fellow billionaire holder Mikhail Prokhorov in pushing for the sale of Norilsk stock, saying it would help the aluminum maker reduce debt and aid expansion.

“If Norilsk is able to buy back its Rusal-owned stake, this definitely would be a positive development for the company,” Valentina Bogomolova, a UralSib analyst in Moscow, said by phone yesterday. “Currently the shareholder conflict is pressuring the Norilsk shares. For Norilsk the resolution of the shareholder conflict would definitely be good in terms of corporate management.”

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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