Telenor, Norwegian telecoms giant is in dispute with Alfa, one of Russia's largest financial groups, over the highly lucrative mobile telephone business in Russia and Ukraine. The Norwegian state is a majority shareholder of Telenor and Alfa is owned by Mikhail Fridman, an oligarch estimated by Forbes in 2008 to be among the 20 richest people in the world - he also has close ties to the Kremlin.
The background to this revealing story of how the power elite do business is as follows: Vimpelcom, Russia's second largest mobile phone operator is 44% owned by Alfa and 29,9% of the voting stock - 33,6% of actual shares - is owned by Telenor. In Kyivstar, the Ukrainian number one operator in this sector, the situation is somewhat reversed; Telenor owns 56,5%, and Alfa 43,5%.
In 2004 Vimpelcom, keen to expand into the Ukraine market, proposed the take over of small company, Ukrainian Radio Systems, (URS). The deal was opposed by Telenor, not overly excited about the prospect of having to spend substantial sums to build up another competitor to their own well established majority owned Kyivstar, but they also had other concerns. URS had a very small business base and the price involved was extremely inflated. Also, the ownership was unclear and the deal appeared as a non-transparent acquisistion. Telenor fended off the move for a year but the purchase was decided by shareholders in 2005. The purchase price was $231 million after URS had unsuccessfully been offered to another bidder for $100 million, and commercially it bombed.
At the heart of the deal was the shareholders' agreement between Telenor and Alfa that any arbitration would take place in Geneva. However, microscopic shareholder of Vimpelcom, Farimex, took Telenor to court in Siberia for loss of profits in the Ukrainian market. Farimex owned 0,002% of Vimpelcom shares and was registered in the British Virgin Islands. The owner was an apparent Dmitry Fridman, but Alfa conveniently insisted there was no connection to Mikhail Fridman.
Farimex claimed Telenor stalled Vimpelcom's penetration into the Ukrainian market and thus damaged growth prospects, claiming an absurd $1,7 billion for the one year delay of acquiring market loser URS. However, Farimex won its case in Omsk, Siberia last year. Telenor refused to put up the money and had its stock in Vimpelcom frozen by the court. An appeal case scheduled for 10 June 2009 in Tyumen, Siberia, was delayed until 30th September for so-called: "technical reasons." The Russian Bailiff on 19 June said it had passed an order to auction Telenor's shares and that the parties were in the process of being notified.
This outcome is Telenor's worst nightmare. It had hoped for a decision, any decision, and to bring the case to the Supreme Court in Moscow. According to Russian law the court can take ownership of confiscated property after a second trial - even if there is an appeal pending to the Supreme Court. So, their shares in Vimpelcom can now be sold on the open market before September, and any subsequent consideration by the Supreme Court. In that case, it is game over. The Russian Bailiff on 19 June said it had passed an order to auction Telenor's shares and that the parties were in the process of being notified.
It is true that Russian oligarchs have been very badly hit by the financial crisis and the downfall on the Russian stock exchange. Last year Mikhail Fridman was to repay Deutsche Bank a $2 billion loan, but he was unable to do so. Rather than pay with his Vimpelcom shares, passing them onto German interests he was bailed out by Russian development bank, Vnesheconombank, which took the stock as collateral. If Fridman cannot pay back this autumn, Vnevsheconombank, that is, the Russian Government, becomes the owners of his Vimpelcom stock. If Telenor's shares are to be sold in the market in the meantime one can only guess who is really pulling the levers.
It is particularly noteworthy that Igor Shchegolev, Russia's Communication Minister at a meeting in Moscow 23 June informed that the government plans to restructure the country's telecommunications holding OAO Svyazinvest. This company holds a dominant position on land based telecommunication and now plans to attain a similar position in the more significant mobile sector. For sure, they will look for a base with one of the three existing operators: Mobile Telesystems, Vimpelcom or Megafon.
This seems to take on the similarities of the Yukos case, and now becomes a test of Medevedev's commitment to the rule of law and an independent judiciary. A negative outcome for Telenor might seriously undermine any credibility for foreign investors in the Russian market. It should also be mentioned that Mikhail Fridman was instrumental in the group that drove British oil giant BP to defeat last year. That also happened in a court in Siberia, a region where Fridman has never lost a case. For Norway, the matter could have an impact beyond Telenor and the Norwegian Government needs to rethink the implications of Statoil - the Norwegian oil conglomerate - as a junior partner in the Shtokman petroleum field in the Barents Sea where Gazprom is very much in the driving seat. Other international investors will have increased qualms about their Russia business.
One more thing:The chairman of the Supervisory Board of Vnesheconombank is:Vladimir Putin. With him he has deputy Prime Ministers Victor Zubkov and Sergei Ivanov and finance minister Alexei Kudrin. In a meeting in Moscow in May with Norwegian Prime Minister Jens Stoltenberg, Prime Minister Vladimir Putin insisted there are no reprehensible connections between politicians and businessmen in Russia - and the judiciary is independent and neutral. Well, that is not everybody's experience!
Ivar Amundsen
Director, Chechnya Peace Forum |
