* 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.
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