VimpelCom has agreed the $2.64 billion sale of a 51% stake in its Algerian phone business to the country’s government, bringing to an end a protracted dispute between the two parties.
The deal to sell a majority stake in Djezzy (Algiers, Algeria) to the Algerian government will also allow VimpelCom (Moscow, Russia) to slash debt while retaining a substantial stake in the emerging-markets player.
VimpelCom came into possession of Djezzy thanks to its 2010 mega-deal to acquire telecoms businesses held by Egyptian billionaire Naguib Sawiris and expand activities outside its domestic market of Russia.
However, Algerian authorities announced plans the same year to nationalize Djezzy, demanding hefty back taxes from VimpelCom that have put unwelcome pressure on the operator’s share price.
In the meantime, VimpelCom’s takeover activities have driven its net debt up to a whopping $27.5 billion, but VimpelCom says the Djezzy deal will allow it to cut this by $4 billion.
The sale of the 51% stake in Djezzy is being executed through VimpelCom subsidiary Global Telecom Holding (GTH) and will see GTH retain a 45.6% stake and buy another 3.4% from minority shareholder Cevital for the fee of $178 million.
“This favorable long-term agreement and settlement represents a successful outcome for all stakeholders,” said Jo Lunder, VimpelCom’s chief executive. “For VimpelCom and GTH, this value accretive transaction releases $4 billion in cash proceeds to pay down gross debt.”
“For GTH and Djezzy, it resolves our dispute in Algeria and allows us to solidify our strong leadership position in Algeria by enabling us to further invest in a high speed 3G network to take full advantage of the potential for mobile data growth in the country,” added Lunder.
Although VimpelCom’s stake in Djezzy will fall to less than 50% as a result of the transaction, the Russian operator is to keep operational control of Djezzy thanks to a shareholder agreement between GTH and the Algerian National Investment Fund – the government vehicle taking ownership of the Djezzy stake.
As noted by Reuters, however, Djezzy is to pay Algeria a $1.3 billion fine to lift foreign exchange and import restrictions and write off tax receivables worth some $700 million, implying a $2 billion write-off for VimpelCom.