What could happen to Potash Corp?

http://economictimes.indiatimes.com/news/international-business/What-could-happen-to-Potash-Corp/articleshow/6756093.cms

TORONTO: News that China's Sinochem will not launch a counterbid for Potash Corp, removes one of the biggest potential obstacles to BHP Billiton's $39 billion offer for the Canadian fertilizer giant.

The fate of Potash Corp is far from certain, however, as other white knights may emerge, and BHP faces regulatory hurdles on the one hand and demands from Potash Corp for a higher bid on the other.

Shares in Potash Corp slipped 1.2 per cent in New York at midday on Friday to $145.37, but remained well above BHP's $130 per share bid, suggesting investors are still confident of a higher offer. BHP, the world's largest miner with a tradition of discipline when it comes to takeovers, may even walk away.

Following are some of the scenarios facing Potash:

HOSTILE SHOWDOWN Probability: Most likely With Sinochem out of the picture this is the most likely scenario because it makes it more difficult for Potash to convince shareholders there are other bidders and that it is worth more. Potash shareholders had indicated they would need BHP to raise its $130 per share bid to $162 before accepting an offer, according to a recent Reuters poll.

If BHP sweetens its bid, but still can't win over Potash's board, it may again take its higher bid directly to shareholders. BHP also might persist with its hostile offer and hope Potash shareholders will be convinced of the bid's merits. For now, Potash is sticking with its "just say no" defense.

A NEGOTIATED DEAL Probability: Likely This outcome is only possible if BHP is willing to substantially raise its bid for Potash. Some analysts argue that it would take an offer of at least $150 a share, while others say Potash's net asset value alone is in the region of $160 to $170 a share. Potash shares touched a high of $240 in 2008. Some analysts say a deal above $165 a share would hurt earnings, but that those levels are unlikely.

BHP's bid faces the additional obstacle of needing formal approval by its own shareholders if it sweetens its offer to a point where the value of the bid exceeds 25 per cent of its own market capitalization.

POTASH FORMS A JOINT VENTURE Probability:

Possible Potash could foil BHP's takeover attempt by selling a portion of its assets into a joint venture at a price that implies a substantially higher value for the whole company than BHP's current bid. Sinochem, China's top fertilizer maker and its No. 4 oil company, could be a viable joint-venture partner, especially now that it has abandoned plans for a counterbid for the whole company.

A Chinese company would ideally seek a supply agreement deal with Potash in the event of a joint venture. However, any agreement on this would have to be structured around Canpotex -- the international marketing arm of potash producers Potash Corp, Mosaic Co and Agrium Inc.

Analysts have also speculated that a consortium of companies could consider the joint-venture model if they were unable to secure enough capital for an all-out bid.

http://www.smh.com.au/business/potash-there-for-bhps-taking-20101019-16sin.html

THE chief executive of BHP Billiton, Marius Kloppers, can clinch control of Potash Corp and put the two misses he has had in game-changing deals with Rio Tinto behind him. But according to analysts, control of the feisty Canadian company will only come if BHP's $40 billion offer is increased substantially.

The Canadian Imperial Bank of Commerce said in a report that since no white knight had arrived with a counter-bid to BHP's one of $130 a share, Mr Kloppers could bank on ultimately being successful, as long as the offer price is closer to $150 a share. It said fundamentals in the crop nutrient markets were improving and that $150 a share could be the ''magic number''.

The bank said it did not expect BHP would receive the necessary shareholder acceptance from Potash shareholders at $130 a share by November 18, the current bid expiry date.

'At $150 a share, there is probably enough of a premium for Potash shareholders to capitulate while still being below the the threshold at which BHP would be required to take this deal in front of its own shareholders (triggered at about $157 a share),'' the bank said.

On the improved outlook for crop nutrients, Morgan Stanley said in a report that inventories for Potash's namesake main product were getting tighter. Inventories are currently 55 per cent lower year-on-year and 17 per cent below the five-year average.

Prices for potash have started to move higher. Potash Corp recently secured a $50 a tonne increase for potash which was followed by the $25 a tonne increase posted by fellow producer Mosaic in the US market. Morgan Stanley said global fertiliser application rates were well below recommended levels. Application rates have been fairly constant over the past 10 years but the bigger crops have been removing more nutrients from soil, it said.

Despite the stronger outlook for crop nutrients and calls for BHP to increase its bid to at least $150 a share, Potash shares have weakened. They fell to $143.21 on Monday.

Mr Kloppers has said he would not acquire Potash simply for the sake of completing a deal.

"I hope my shareholders consider that my job is on the line if we do an acquisition purely for the sake of doing an acquisition," he said in August when the bid was announced. "I will be as disciplined on this bid as I've been on every other endeavour that we've been on."

Pressure is building on Mr Kloppers to seal the deal after a proposed $116 billion iron ore production joint venture with Rio Tinto in the Pilbara was cancelled this week. It would have saved the companies a collective $10 billion - the biggest near-term prize either had on the go. It was killed off when it became clear anti-trust regulators around the world would withhold approval.

Vimpelcom Dials Up a Deal

http://www.investmentu.com/2010/October/vimpelcom-dials-up-a-deal.html

Investors may recall Vimpelcom ADR (NYSE: VIP) for the long legal battle over ownership of its Ukrainian telecoms assets. The contestants are its two biggest shareholders: Mikhail Fridman, the Russian oligarch behind the Alfa group, and Jon Fredrik Baksaas, CEO of Norway’s Telenor ADR (PINK: TELNY).

But now, Vimpelcom has gained attention for much more positive reasons: a merger. And one that will create the world’s fifth-largest mobile phone carrier as ranked by customers.

It plans to combine with most of Egyptian entrepreneur Naguib Sawiris’ telecommunications assets. That $6.6 billion deal will open further doors for Vimpelcom across the former Soviet Union, Asia, Africa and Italy.

By combining with Sawiris’ Weather Investments, it also secures a 51.7% stake in Egypt’s Orascom Telecom group and full ownership of Wind, Italy’s third largest mobile operator. In return, Weather Investments gets $1.8 billion in cash and a 20% stake – 18.5% of the voting shares – in the enlarged Vimpelcom… worth about $4.8 billion.

After the merger finalizes, Telenor will have 29.3% of the voting shares and the Alfa Group will have 36.4%.

Vimpelcom Likes the Weather in Russia

While Vimpelcom is Russia’s second-largest mobile operator, that country has a relatively mature mobile market. So it can definitely use the extra boost.

It does already have businesses in eight other countries in key areas such as central Asia. Vimpelcom gains significant growth potential from such countries, including Kyrgyzstan.

But this new merger gives it so much more…

It doesn’t give Vimpelcom access to Orascom’s Egyptian assets. But it does include the Cairo-listed company’s seven mobile businesses in Africa and Asia.

Those in Algeria, Pakistan and Bangladesh are especially significant. Orascom has operations where tremendous growth opportunities exist, including in the Central African Republic, where less than half the population owns a mobile phone.

The enlarged business will benefit from the near doubling of the number of its customers, since the mobile phone operator industry’s profitability rests largely on size: economies of scale.

It also enables Vimpelcom to expand into Africa and beef up its presence in Asia, where the company already has operations in Vietnam and Cambodia.

And Vimpelcom’s move into western Europe via Wind in Italy should help it gain valuable knowledge of the fast-growing consumer appetite for smartphones.

Vimpelcom Shares Tank on Rumors

Despite all that, investors don’t like the deal so far. Vimpelcom shares have tanked 10% since rumors about it leaked this summer.

Some think it can’t handle such a big shift away from its traditional base. Others worry about it taking on Weather Investment’s large debts.

Under the terms of the deal, Vimpelcom will accept $14 billion of Weather’s debt and issue an additional $2 billion. This means its net debt will increase from $4 billion to $24 billion… hardly desirable.

Additionally, Orascom’s Algerian mobile phone business, Djezzy, has an ongoing dispute with the local government, partly over taxes.

Djezzy, which generates about half of Orascom’s earnings, got hit with a $597 million 2009 tax bill. Since then, Orascom has struggled to get any of the cash it generates.

The larger company even tried to sell its African assets to South Africa’s MTN Group ADR (PINK: MTNOY) earlier this year. But discussions broke down after the Algerian government interfered.

In Vimpelcom’s favor, however, Russia has excellent relations with Algeria. So Russian President Medvedev is trying to broker a deal to the satisfaction of all right now.

The Merger Makes Sense for Vimpelcom

In the end, the merger actually does make sense for Vimpelcom and its shareholders.

Net debt will start out at 2.5 times earnings before interest, tax, depreciation and amortization. But with combined annual revenues of $21.5 billion, that should easily fall over the coming years.

Besides, Vimpelcom’s main telecoms market in Russia is stagnating; it needs to find growth elsewhere. And the smaller emerging markets of Africa and Asia offer just that.

In addition, while Orascom is a leading emerging markets player, it doesn’t have a prayer against giants like Vodaphone ADR (NYSE: VOD). Neither does Vimpelcom.

But together, they can really compete in the scale-oriented industry.

It might not be the ideal solution considering the uneasy alliance between Vimpelcom’s biggest investors. But it’s still not a bad one.

Good investing,

Tony D’Altorio

Crop Report 'Shocker' Ripples Through Agriculture Sector

CHICAGO (Dow Jones)-- Government forecasters slashed estimates for the U.S. corn harvest Friday, causing futures prices to surge while igniting shares of many agriculture companies.

U.S. corn futures soared to a daily trading limit on the Chicago Board of Trade when the market opened, rising 30 cents, or 6%, to $5.82 1/4 a bushel -- near a two-year high. Soybean and wheat futures also hit their exchange-imposed trading limits at the market opening.

"Shocker may be an understatement," said Jason Britt, president of Central State Commodities, a Kansas City brokerage. "It's very out of character for the USDA to lower the corn yield so much."

The crop report spilled into equity markets with tractor makers such as Deere & Co. (DE) climbing on the news along with seed and fertilizer companies such as Monsanto Co. (MON). Livestock and poultry producers such as Smithfield Foods Inc. (SFD), meanwhile, traded lower on expectations that higher crop prices would increase feed costs. Longer-dated future contracts for cattle and hogs rose as well.

The U.S. Department of Agriculture projected a national corn yield of 155.8 bushels an acre, well below last month's projection of 162.5 bushels and lower than analysts' average forecast of 159.9 bushels per acre.

The USDA was projecting a record crop a couple months ago. But farmers have largely been disappointed as harvest progresses. The crop faced problems from excessive rains early in the season that washed away supplies of nitrogen, a crucial nutrient, and was also stressed by unusually hot night-time temperatures all summer.

While many traders and analysts could see this year's corn crop yield drifting down to 155 bushels an acre, few expected the USDA to make such an aggressive revision so soon. The U.S. harvest is roughly 50% complete.

"This is a very tight balance sheet we now have to live with for a long time," said Sal Gilbertie, lead manager of the Teucrium Corn Fund, an exchange-traded fund based on corn futures.

Other agriculture commodities followed corn higher. Wheat and soybeans surged in part because both, like corn, serve as an animal feed. Livestock futures also climbed because feed is a major cost for producers.

Stocks for farm machinery manufacturers and other agribusiness companies rose on prospects that higher prices for corn will provide farmers with more money to spend on equipment, fertilizer and seed. Tractor makers Deere, CNH Global (CNH) and Agco Corp. (AGCO) are all higher, along with seed and fertilizer companies Monsanto, CF Industries Holdings Inc. (CF) and Potash Corp. of Saskatchewan (POT).

Shares for crop processors Archer Daniels Midland Corp. (ADM) and Bunge Ltd. (BG) also moved up as tight supplies of crops provide them with leverage to raise their prices. But meat and poultry producers, including Smithfield Foods, Tyson Foods Inc. (TSN) , Pilgrim's Pride Corp (PPC) and Sanderson Farms Inc. (SAFM), were lower in morning trading.

Analysts said Friday's report reignites concerns that the market needs higher prices in order to discourage demand and stave off a supply crisis. The report could have other ramifications, since the government has yet to rule on a request to increase the amount of ethanol that can be blended in gasoline to 15% from 10%.

"This could (heighten) the debate on moving ethanol blends higher, and 'food versus fuel,'" debate, Britt said.

HEARD ON THE STREET: VimpelCom Bets Bigger Is Still Better

http://online.wsj.com/article/SB10001424052748703843804575534371691572824.html?mod=googlenews_wsj

Bigger is better" still holds sway in some parts of the telecom world.

Russia's VimpelCom is acquiring the bulk of Egyptian billionaire Naguib Sawiris's telecom assets for $20.6 billion. Those include Italian mobile group Wind Telecomunicazioni, or Wind Italy, and a 52% stake in Cairo-listed Orascom Telecom Holdings, with operations in Africa and Asia. VimpelCom will more than double in size, entering the global top five by subscribers. While the risks are high, VimpelCom is buying the assets at a reasonable price.

The deal remedies weaknesses for both players. VimpelCom is challenged for growth outside the former Soviet Union and has no presence in developed markets to benefit from mobile data growth. Mr. Sawiris's problem is debt, which has curbed Wind Italy's growth and led to a restructuring at Wind Hellas in Greece. In Algeria, he faces crippling retrospective tax charges and nationalization threats. Mr. Sawiris has sought a tie-up before, but a deal with South Africa's MTN failed this year over Algeria, responsible for roughly half Orascom's earnings before interest, taxes, depreciation and amortization, or Ebitda. Mr. Sawiris's 20% posttransaction stake in VimpelCom will allow him to benefit from any upside if the Algerian situation works out better than expected.

VimpelCom is paying 6.2 times Ebitda for Mr. Sawiris's assets. Even if the Algerian business were to be nationalized with no compensation to VimpelCom, the effective multiple still would be below seven. Recent emerging-market deals have commanded double-digit multiples. Add in $2.5 billion of VimpelCom synergy estimates and the deal looks reasonable even through a developed-market prism, important given the bulk of Ebitda comes from Italy.

VimpelCom also could fare better in Algeria than Mr. Sawiris appears to be doing. Management is meeting Algerian authorities. If Russian President Dmitry Medvedev, in the country to discuss a raft of possible trade opportunities, backs VimpelCom, it could make a difference. Selling the assets to the Algerian state is one option under consideration.

The deal will push VimpelCom's net debt to Ebitda from 0.8 to a hefty 2.5 times. Still, rivals such as Telefónica operate with similar leverage, and the $2.5 billion in operating free cash flow VimpelCom is acquiring should cover interest payments from the deal almost four times. Entering 10 new markets also is risky. VimpelCom argues it has ample experience building operations in tricky places like Kyrgyzstan, while the Russian market now shares many of Italy's characteristics.

Getting bigger hasn't always helped telecom groups. Economies of scale often fail to materialize. After a string of acquisitions, for example, U.K. behemoth Vodafone Group now is in divestment mode. But while speculation over a deal has weighed on VimpelCom's shares since August, reflected in 6% underperformance versus Russian peer Mobile TeleSystems, Algerian problems may be surmountable, and the acquisition less costly than feared. VimpelCom's big gamble could pay off.

CFSG other verticals

China Fire & Security Group (CFSG) is a leading provider of industrial fire protection systems. The company’s China-based rivals tend to focus on low-end and technically less sophisticated products which are low-grade and unsuitable for large projects.

The market for the design and installation of fire safety systems is served by numerous small firms. Of these, China Fire has emerged as the largest in the past five years. The company’s leading position in the domestic industry helped it to win a high percentage of bids, which is around 60%-70% of bids in the iron and steel industry.

China Fire is benefiting also from the Chinese iron and steel industry's Revitalization Scheme, which promotes production control, encourages industry consolidations and emphasizes the development of new technologies. This stimulus plan provides financial subsidies and loan discounts to leading iron and steel companies, allowing larger and more advanced steel producers to upgrade existing plants and develop new innovative facilities. China Fire sees huge growth potential for its Total Solutions business as the segment derives more than 80% of revenue from the iron and steel industry.

Although the company primarily serves the iron and steel industry, it is now looking to expand into other industrial sectors. In China, about three to five large-scale nuclear plants are expected to be built every year until 2020. This represents an attractive opportunity for China Fire to grow in a new industrial vertical as the Chinese government directs that at least 50% of the equipment used for new nuclear power plants should be sourced locally. As the largest industrial fire protection provider in China, China Fire will benefit from the government policy.

Given its brand reputation as a leading total solution provider and its comprehensive line of proprietary products, we believe China Fire is well-positioned to capitalize on the growth potential in China’s industrial fire protection market. We are upgrading our rating on the stock from Neutral to Outperform.

Stuy Town Foreclosure Auction Postponed

Two groups of investors battling over the sprawling Stuyvesant Town and Peter Cooper Village apartment complex neared a deal Monday that could save the new owners of the complex as much as $100 million in state and local taxes, according to people familiar with the matter.

The negotiations involving the firm representing the main mortgage holders of the 11,200-apartment property and a separate group of investors led by Bill Ackman and Winthrop Realty Trust pushed off the foreclosure auction that was scheduled for Monday and the long-awaited transfer of the property. The complex has sat in limbo ever since January, when the owners, a group led by Tishman Speyer, defaulted on their $5.4 billion purchase.

While the over-leveraged complex is financially ailing, it is still enormously valuable, a fact not lost on investors who are eager to capitalize on the mistakes of others. The custodian of the $3 billion first mortgage on the property, CW Capital, has long been trying to foreclose on the 80-acre residential complex.

But Mr. Ackman's group, which bought a key piece of junior debt, has been maneuvering for control. That effort was thwarted last month when a court ruled against them.

The Ackman group could still cause problems for CW Capital, however, if CW Capital's strategy involves "cleansing" the complex through a bankruptcy filing. Such a move could help CW avoid paying taxes to the city, state and MTA, estimated upward of $100 million.

Terms of the deal being negotiated were not available Monday. One likely scenario would involve the Ackman group being bought out by CW Capital.

But should a deal indeed lead to a transfer that avoids taxes, it could also draw scrutiny from state and city officials, according to legal experts, as it would mean foregone revenue during the recession.

"If the deal was reached in an effort to minimize significant New York state and New York City taxes, no doubt they are spending considerable time structuring in a way to minimize scrutiny by state and local tax officials," says Mark Edelstein, head of the real-estate group at the law firm Morrison & Foerster.

Tishman Speyer has long sought an exit, while CW Capital has plodded through the lengthy foreclosure process and beaten back two challenges by two separate hedge-fund managers.

Once a transfer does occur, regardless of the specific route, the keys would be turned over to CW Capital, a Boston-based special servicer of loans that has grown substantially amid the exploding world of distressed mortgages.

Anxiously awaiting a transfer have been the tenants at Stuyvesant Town, as the tenants association and Councilman Daniel Garodnick have been working for months with CW Capital on a plan for a conversion to co-ops or condominiums, which would likely unlock significant value in the short-term.

In a statement, Mr. Garodnick was critical of the postponement Monday, calling it a "distracting move that destabilizes what was on track to be an orderly process."

CW Capital, while not committing itself publicly to a conversion, has retained a law firm to handle a conversion: Kramer Levin. The foreclosure auction, should it occur, has been postponed to Oct. 13.

Never Underestimate Wily Bill Ackman

Last week, the Observer was prepared to count Bill Ackman out at Stuyvesant Town. The brash investor had lost an appeals court decision that meant he could not seize control of the massive East Side housing complex and force it into foreclosure, wiping out his and Winthrop Realty's $45 million investment. CW Capital, which represents the senior lenders on the property, was expected to prevail in a foreclosure auction scheduled for today.

But the sale has been called off, and it looks like Mr. Ackman might carry the day after all.

The auction is now scheduled for Oct. 13 because CW Capital is said to be in negotiations with Mr. Ackman and Winthrop for their $300 million in debt. The speculation is that by buying out Mr. Ackman, CW can force the complex into bankruptcy, saving it what the Journal says is $90 million in taxes and fees or as much as $200 million, according to Crain's.

With those kind of numbers, Mr. Ackman might go from getting wiped out to making a profit on his gambit. Not nearly what he would have made had he won the complex as a whole, which he set out to do this summer, but not a bad beat, either.
-------

Now it looks like his "worst case scenario" is getting his money back and perhaps double it. Or, he might get a stake in the property instead.

This is what I kept looking for because I knew that Ackman & Ashner were too smart to throw away $45 million.

In this case, it sounds like they knew what they were doing.

And paying Ackman even $70 million would be cheaper than paying transfer taxes of $90-200 million.

Vimpelcom merger

http://www.reuters.com/article/idCNLDE6930OI20101005?pageNumber=1

* Involves $1.8 bln cash, 326 million new shares

* CEO says has yet to agree on purchase of Algerian unit

* Wind's Greek unit not included in the deal

* Vimpelcom shares down 2.3 percent

(Changes byline, adds Orascom chairman comments)

By Maria Kiselyova and Alexander Dziadosz

MOSCOW/CAIRO, Oct 4 (Reuters) - Russian mobile operator Vimpelcom (VIP.N) will buy Italian mobile group Wind and control of Egyptian operator Orascom Telecom (ORTE.CA) for $6.6 billion, and seek a deal with Algeria to keep Orascom's Djezzy unit.

The cash and shares deal, with Egyptian tycoon Naguib Sawiris' Weather Investments, will create the world's fifth-largest mobile operator, worth around $23 billion and with 174 million mobile subscribers.

For Vimplecom, an emerging market specialist partly owned by Russian billionaire Mikhail Fridman, the transaction marks a major expansion into Asia and North Africa and a first move into the developed European market.

Vimpelcom Chief Executive Alexander Izosimov told Reuters Insider Television the fate of Orascom's Algerian unit, Djezzy, its biggest single source of revenue, had yet to be decided. <^^^^^^^^^^ "We had to accept that risk (around Djezzy). But we are absolutely open to a deal with the Algerian government and propose to them to resolve it somehow amicably. We believe it will be a fair process and we will find a solution," he said in an interview in Amsterdam. He later said on a conference call that it was a "highly unlikely scenario" that Vimpelcom would lose Djezzy to an Algerian government that wants to nationalise it. Izosimov will travel this week to Algeria as part of a delegation led by Russia's president, Dmitry Medvedev. Sawiris, chairman of the Weather investment group, said he expected the visit to have a positive impact on Djezzy's operating conditions, adding that the value in a previous "discounted" offer for Djezzy from South Africa's MTN (MTNJ.J) of $7.8 billion still held. "I'm sure he's (Medvedev) going to raise the subject and he's going to try and help improve the circumstances under which Djezzy operates," Sawiris said in a phone interview.

While Orascom's operations in Egypt and North Korea were included in the deal, the assets will be demerged in the third quarter of 2011, Vimpelcom said. Wind's Greek unit is not included in the deal.

It was the biggest international deal by a Russian company -- the previous record of $5.9 billion was set when metals and mining company Norilsk Nickel bought LionOre Mining.

Vimpelcom's NYSE-listed stock was down 2.2 percent in late trade on Monday on what a Moscow-based trader said were risks surrounding the Algerian deal.

OUTSTANDING ISSUES

Upon completion of the deal, Russian Alfa-Group would have 31.4 percent of economic rights in Vimpelcom, and minority shareholders would have 17 percent.

Alfa said it was "committed to finalise it (the deal) in due terms."

Norwegian group Telenor (TEL.OL), whose economic stake in the enlarged Vimpelcom would fall to 31.7 percent from 39.6 percent, said it would give final approval if certain conditions were met.

"There are a few conditions to closing this deal. One is approval from regulatory authorities in some markets and another is a final shareholders' agreement between all three parties -- and presumably the Weather shareholders," spokesman Dag Malgaard told Reuters.

Telenor has voiced concerns the deal will weaken dividend payouts. Its shares closed down 1.7 percent.

Algiera, which rejected Orascom's plans to sell Djezzy to South Africa's MTN, has been trying to nationalise the unit and was expected to make an offer in coming months.

Algerian law gives the government the right to block any sale of Djezzy to Vimplecom, but analysts said Medvedev's visit on Oct. 6 could help ensure the lucrative business was not stripped out after a deal was done.

The deal would help Orascom's holding company lighten its debt burden and become a player in the one of world's top five telecommunications companies, a goal Sawiris has talked about since 2006.

Sawiris said Orascom would be split into two separate stocks listed on Egypt's bourse in order to demerge the company's Egyptian and North Korean assets.

Orascom's London-listed global depositary receipts (GDRs) (ORTEq.L) rose 7.3 percent.

Vimpelcom said it would raise $2 billion to $2.5 billion of debt, taking the total burden of the combined group to $24 billion. (Additional reporting by Alexander Dziadosz in Cairo, Victoria Howley in London, Christian Lowe in Algiers, Melissa Akin and Anastasia Teterevleva in Moscow; Editing by John Bowker and Lin Noueihed)

Under the terms of the agreement, the Russian wireless operator will own 100% of Wind Telecomunicazioni, with Weather stockholders receiving about 325.64 million newly issued VimpelCom common shares, as well as $1.8 billion in cash and certain assets demerged from Orascom Telecom and Wind Italy.

The assets being acquired are Orascom Telecom investments comprised principally in Egypt and North Korea.

If approved, Weather will gain 20% economic interest and 18.5% interest in the larger VimpelCom.

http://www.bloomberg.com/news/2010-10-04/vimpelcom-record-low-yields-show-bondholders-supporting-m-a-russia-credit.html

OAO VimpelCom’s borrowing costs are falling to record lows, a sign investors will support higher indebtedness to fund acquisitions as the Russian mobile-phone operator buys assets from Egyptian billionaire Naguib Sawiris.

VimpelCom’s $1 billion of bonds due April 2013 traded at a yield of 4.77 percent yesterday, the lowest since the notes were issued in April 2008 and down from 7.41 percent in May, according to data compiled by Bloomberg. The yield is 143 basis points, or 1.43 percentage points, higher than Russian government bonds due 2015, the smallest premium in two months.

Investor sentiment is shifting after the global credit crisis and the country’s worst recession since the Soviet era drove Russian companies to cut foreign acquisitions by 73 percent this year to a five-year low, according to data compiled by Bloomberg. Foreign takeovers by Russian firms totaled $3.24 billion this year, lagging behind the biggest emerging markets as acquisitions from India surged fourfold to $56 billion and Brazilian companies spent $41 billion, the data show.

“We might see more Russian corporations coming out to snap up emerging-market assets in other, faster growing countries,” said Peter Varga, who helps manage the equivalent of about $171 million of emerging-market corporate bonds at Erste Sparinvest KAG in Vienna. Varga said he increased VimpelCom bonds to 4 percent of his fund on Aug. 18, when the yield on the notes due in 2013 was 5.59 percent. “VimpelCom can take on some debt and still be in the comfort zone,” he said.

Weather, Wind

VimpelCom of Moscow and Egyptian billionaire Naguib Sawiris agreed yesterday to merge their phone assets in a transaction valued at about $6.5 billion.

VimpelCom’s bonds rallied as the Sawiris merger is poised to turn the Russian company into the world’s fifth-largest mobile phone operator, with 174 million subscribers, according to its statement yesterday. The enlarged company will have a market capitalization of $24 billion, up from $19 billion, according to the statement.

The Russian company will own the 51 percent stake in Cairo- based Orascom Telecom Holding SAE held by Sawiris’s Weather Investments SpA along with all of Italian mobile operator Wind Telecomunicazioni SpA. Weather shareholders will get 20 percent of the merged entity. The combined entities earned total revenue of $21.5 billion in 2009, according to the statement yesterday.

VimpelCom shareholders will vote on the transaction by year-end and the company expects to complete the deal in the first quarter.

‘Strategic Move’

“This is really a strategic move since this would create a large mobile company that will cover a wide range of still unpenetrated markets in the Middle East, North Africa, the CIS and the eastern part of the world,” Sergey Dergachev, who helps manage $6 billion at Union Investments in Frankfurt, said in a phone interview. “I do not expect a significant deterioration in VimpelCom’s credit profile.”

Gains in Russia’s dollar bonds due in 2020 today reduced the yield ten basis points, or 0.10 percentage point, to 4.385 percent, the lowest level since they were sold in April. The yield on government ruble notes due August 2016 fell eight basis points to 7.2 percent.

Default Swaps

The extra yield investors demand to hold Russian debt rather than U.S. Treasuries fell six basis points to 225, according to JPMorgan Chase & Co.’s EMBI+ indexes. The difference compares with 153 for debt of similarly rated Mexico and 207 for Brazil, which is rated two steps lower at Baa3 by Moody’s Investors Service.

The yield spread on Russian bonds is 47 basis points below the average for emerging markets, down from a 15-month high of 105 in February, according to JPMorgan indexes.

The cost of protecting Russian debt against non-payment for five years using credit-default swaps fell three basis points to 158, according to data provider CMA. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.

Credit-default swaps for Russia, rated Baa1 by Moody’s, its third-lowest investment grade rating, cost the same as contracts for Turkey, which is rated four levels lower at Ba2. Russia swaps cost as much as 40 basis points less on April 20.

Ruble Gains

The ruble climbed 0.3 percent to 30.3624 per dollar by 1:18 p.m. in Moscow, its strongest intraday level since Aug. 18. Non- deliverable forwards, or NDFs, which provide a guide to expectations of currency movements and interest rate differentials and allow companies to hedge against currency movements, show the ruble at 30.5767 per dollar in three months.

President Dmitry Medvedev said in November he wants to reduce the country’s “humiliating” reliance on commodities. The economy of Russia, the world’s biggest energy exporter, shrank by a record 7.9 percent last year after a 54 percent slump in oil prices in 2008.

VimpelCom Chief Executive Officer Alexander Izosimov said the deal will be “transformational” for the company. “It offers our shareholders exposure to attractive growth markets in both Asia and Africa and the opportunity to diversify further our revenue base in terms of geography, currency and market characteristics,” Izosimov said in a regulatory statement yesterday.

Sawiris said in a statement minority shareholders in Orascom Telecom will benefit from synergies created by the merger, “especially in the area of procurement, and by the overall strengthening and de-risking of the balance sheet.”

Rising Debt

VimpelCom’s debt will increase to 2.5 times earnings before interest, taxes, depreciation and amortization because of the acquisition, said Maxim Raskosnov, a banking analyst at Moscow- based investment bank Renaissance Capital. The current level is 1.45 times Ebitda, according to data compiled by Bloomberg for 2009.

Wind Italy had net debt of 8.29 billion euros ($11.4 billion) as of June 30, data compiled by Bloomberg show. Orascom Telecom owed $4.61 billion.

The deal is “risky” as it may saddle VimpelCom with an additional $12 billion of debt, taking the combined total to $17 billion, Konstantin Chernyshev, head of research at Moscow brokerage UralSib Financial Corp., said in an e-mailed report yesterday. “The upside of the potential deal is also questionable given the relatively weak position of Wind in its main Italian market, which is already saturated, as well as Orascom’s problems in Algeria, where the company has been charged with back-tax claims,” according to the report.

Tax Tangle

Orascom is entangled in a tax dispute in Algeria, which will be dealt with “in due course,” VimpelCom’s Izosimov said yesterday in a conference call with reporters. He and Russian President Dmitry Medvedev will be in Algeria this week, he said.

Mikhail Galkin, the head of fixed-income research in Moscow at VTB Capital, the investment banking arm of VTB Group, recommends investors avoid increasing VimpelCom bond holdings. Reports from ratings companies will be “negative,” he said.

Carlos Winzer, a telecom analyst at Moody’s in Madrid, and Michael O’Brien, a credit analyst at Standard & Poor’s in London, both declined to comment.

VimpelCom’s Amsterdam-based parent, VimpelCom Ltd., was formed by Russian billionaire Mikhail Fridman’s Alfa Group and Norway’s Telenor ASA to consolidate holdings in Russian and Ukrainian mobile-phone operators. The company is 39.6 percent- owned by Fornebu, Norway-based Telenor while Alfa’s Moscow-based Altimo unit controls 39.2 percent and minority shareholders own 21.2 percent.

VimpelCom bonds plunged in August following initial reports that the company was in talks with Sawiris, pushing the yield on the company’s bonds due in 2013 to their highest since July 21 at 5.93 percent.

‘Market Fears’

“The market fears have been allayed somewhat,” Sergey Kolesnikov, head of fixed income at Moscow brokerage Metropol IFC, said in a telephone interview. “VimpelCom realized the negative effect the deal was having on their bonds and shares and it looks like they will find a clever way to structure the deal so the debt doesn’t sit on their balance sheet.”

VimpelCom is rated Ba2 at Moody’s, two levels below investment grade, and BB+ at S&P’s, the highest non-investment grade. Wind is ranked Ba3 at Moody’s, three levels below investment grade, and B+ at S&P, four levels short. Orascom Telecom Holding has a B2 rating at Moody’s, five below investment grade, and B- at S&P, six levels under.

Egypt mogul confident over Russian telecom merger

CAIRO (AP) -- Orascom Telecom's chairman said Tuesday there was 90 percent chance that the planned merger of his investment company and Russia's VimpelCom Ltd. will be finalized, despite uncertainty over the fate the Egyptian telecom giant's Algerian subsidiary.

VimpelCom and Naguib Sawiris' Weather Investments SpA -- which owns most of Orascom Telecom -- had announced on Monday a $6.6 billion deal that would create the world's fifth largest mobile telecommunication service provider.

The deal would give VimpelCom, via Weather, 51.7 percent of Orascom Telecom and all of Italy's Wind Telecomunicazioni SpA, both of which are headed by Sawiris. A potential question mark was Djezzy, OT's lucrative Algeria subsidiary that has been locked in a bitter feud with Algiers over taxes.

Sawiris told reporters that Djezzy's struggles had been a key factor in his decision to strike a deal with VimpelCom, and that he believed Russia's relationship with Algeria may help solve the dispute that has already scuttled an earlier deal between OT and South Africa's MTN Group.

Weather and VimpelCom "have signed a deal that is subject to some refinancing of the debt, some regulatory issues," Sawiris said when asked if he thought Algeria could scuttle the planned merger. "But my gut feeling, the answer would be 'No'."

"But as you know, in any deal, before the closing, you can never be sure," he said, adding that he believed there was a "90 percent" chance the planned merger would be finalized.

OT's shares are up almost 5.6 percent to 5.48 Egyptian pounds near market close Tuesday, a day after the Egyptian stock exchange halted trading in the stock pending a reply from OT about the reports of the possible merger.

The deal is one Sawiris said he would have preferred to wait to conclude to get a better price. But he said he saw little choice given the Algeria dispute with what was OT's chief revenue earner.

OT's first run-in with Algeria was over some $600 million in back taxes. Orascom -- which with France Telecom jointly operates Egypt's largest mobile phone service provider by subscribers -- unsuccessfully appealed that bill and saw its bid with MTN collapse after Algeria said it would exercise its right to buy the company first. It has yet to act on that possible purchase.

Complicating matters for OT is a new $230 million tax reassessment claim by Algeria, an issue which may be eased with Russian President Dmitry Medvedev's visit to the country this week. OT has said it will challenge that assessment.

But Sawiris expressed frustration with the obstacles the company was facing in the country, saying Djezzy's operations had largely been frozen for months and that "our ability to continue work is blocked."

"We can't continue," he said. "We're ready for any solution. We're ready for this blockade to be lifted so we can work. We're ready to sell the company to them."

"We never objected to that," he said, stressing that any such sale would have to be at fair market price.

Algeria's industry minister, Mohamed Benhamadi said Tuesday that the government still wanted to buy Djezzy.

"Any change in the shareholding of Orascom Telecom Holding does not undermine the commitments already made to cede Orascom Telecom Algeria to the Algerian state," he said, according to the official Algerian news agency APS.

"The negotiations under way between the Algerian government and the owners of the OTA group were not all put under question," he said. "They are two distinct operations. The first concerns a transaction between two international holdings, and the second concerns a procedure of ceding the rights to a company under Algerian law."

The planned merger with VimpelCom is expected to close next February, with those assets not included in the sale to be split off two months later, OT's chief executive Khalid Bichara said.

Under the deal, Weather shareholders would get 20 percent economic interest and 18.5 percent voting interest in the new company, as well as $1.8 billion in cash. Not included in the deal are Egyptian telecom firm Mobinil and OT's North Korea operation.

Egypt's financial regulator said it wanted assurances that the deal would not undercut the rights of OT's minority shareholders and a disclosure of OT's valuation before the Egypt operation was separated as part of the merger.

The planned merger is seen as a boon for VimpelCom, expanding its reach in developing markets. OT operates in several African and Asian nations and the new company would have operations in 20 countries with 174 million subscribers.

VimpelCom, which is jointly owned by Russia's Alfa Group and Norway's Telenor, had a net debt of almost $4 billion by the end of the first half of 2010. Wind's net debt stood at about $10.6 billion.

Vimpelcom (VIP.N) will attempt to broker a deal with the Algerian government to retain ownership of telecoms group Djezzy following its $6.6 billion deal for the Weather empire, CEO Alexander Izosimov told Reuters on Monday.

"We had to accept that risk (around Djezzy), but we are absolutely open to a deal with the Algerian government ... we believe it will be a fair process and we will find a solution," he told Reuters Insider Television.

The $6.6 billion valuation includes Djezzy. Algeria had wanted to buy back Djezzy from previous owner, Egypt's Naguib Sawiris.

Izosimov said he would travel to Algeria to join a delegation led by Russian President Dmitry Medvedev later this week. (Reporting by Adrian Murdoch, Writing by John Bowker, Editing by Melissa Akin)

n">MOSCOW/LONDON Oct 6 (Reuters) - Russian President Dmitry Medvedev faces an uphill battle on Wednesday convincing Algeria to approve the sale of its biggest mobile telephone operator and BP's Algerian assets to Russian companies.

On the line is Vimpelcom's bid to become the world's fifth largest mobile phone operator and enter the developed European market by buying control of Egyptian tycoon Naguib Sawiris's telecoms assets for $6.6 billion.

The jewel in the crown of the proposed deal is Orascom Telecom's Algerian unit Djezzy, its biggest revenue earner, which Algeria's government is trying to nationalise.

With no break fees on the deal, either side could walk away from the agreement without financial penalty.

Vimpelcom Chief Executive Alexander Izosimov, travelling with Medvedev, said he hoped Djezzy would be discussed in the Russia-Algeria talks, adding Vimpelcom would consider selling "if the Algerian government insists".

"I am ready to raise this question because it is a big investment, one of the biggest Russian investments in the Algerian economy," he told reporters in Algiers.

With the complex Djezzy and BP transactions depending on the approval of Algerian President Abdelaziz Bouteflika, Medvedev's ability to clinch big deals for Russian business -- the hallmark of his patron Vladimir Putin -- will be put to the test.

Algeria has already rejected approaches from Egyptian President Hosni Mubarak and South African President Jacob Zuma to sanction the sale of Djezzy to South Africa's MTN and has said it would make an offer for the unit within months.

But Elena Mills, a senior analyst with Alfa Bank in Moscow, said interest in energy assets in Russia and Algeria could help the countries find a resolution over Vimpelcom too.

"The presence of Medvedev is not exactly a coincidence," she said. "Now a deal has been announced he can raise the issue of Djezzy. That Russia and Algeria both have oil and gas assets is helpful -- a common ground could be found."

SAWIRIS OUT OF PICTURE

Medvedev, also accompanied by Russian billionaire Mikhail Fridman, whose Alfa-Group owns 40 percent of Vimpelcom, should have a better chance of ending uncertainty over Djezzy with Sawiris out of the frame.

Tensions between the Algerian government and the Sawiris family go back to 2008, when Orascom Construction Industries, led by Sawiris's brother Nassef, sold its Algerian cement business to France's Lafarge.

Algeria has fraught ties with its former colonial ruler and Algiers felt it should have been consulted.