Egypt exchange halts trading in Orascom Telecom on reports about possible deal with VimpelCom

By Tarek El-tablawy, AP
Monday, October 4, 2010

Egypt exchange halts trading in Orascom Telecom

CAIRO — Trading in mobile phone service provider Orascom Telecom’s shares was halted on the Egyptian stock exchange Monday as the bourse sought clarification about reports of a possible deal with Russia’s VimpelCom Ltd.

Media reports indicated that VimpelCom could announce as early as Monday progress on a deal in which it would buy controlling stake in Orascom — a bid valued at over $6 billion that could largely hinge on whether it would include Djezzy, OT’s Algeria subsidiary which generated the most revenue for the company last year.

Russian media and Bloomberg reported the new company — pending the completion of the deal — would include the 51 percent stake in OT held by Weather Investments, the company headed by Orascom Telecom chief executive Naguib Sawiris. It would also include Italian mobile phone operator Wind Telecommunications SpA, which is headed by Sawiris.

Weather Investments has only said that Sawiris would hold a press conference Tuesday.

In a statement, the Egyptian stock exchange said it halted trading in OT’s shares pending a response from the company about the reports. OT’s shares had rallied over 4.6 percent on Sunday on the Egyptian bourse, closing at 5.19 Egyptian pounds. The company’s global depository receipts on the London Stock Exchange were up 7.24 percent to $4.70 by 2:30 p.m. Cairo time.

Orascom — which with France Telecom jointly operates Egypt’s largest mobile phone service provider by subscribers — declined to immediately comment on the possible merger. VimpelCom, Russia’s second largest mobile phone service provider, also declined to comment.

The deal is the latest attempted by Orascom’s Sawiris to sell off some key assets.

An earlier bid to sell most of OT’s non-Egyptian units to South Africa’s MTN Group fell apart largely because of a dispute between the firm and Algeria over some $600 million in back taxes owed by Djezzy. Algeria had blocked the deal, saying it had the first option to buy the Algerian subsidiary. The country, however, has yet to move on that purchase.

Complicating matters for OT is a new tax claim by Algeria, an issue which may be eased with Russian President Dmitry Medvedev’s visit to the North African nation this week.

Algerian authorities last week handed OT a new notification about a $230 million tax reassessment for 2008 and 2009. OT said it would dispute the new claim. Any deal with VimpelCom would likely have to include Djezzy.

Russian business daily Vedomosti reported Monday that VimpelCom presented a possible deal with Sawiris to the company’s board in Amsterdam on Sunday.

The newspaper, citing unidentified sources, said the deal would include OT’s assets in Africa and Asia, as well as Italy’s Wind, making the new company the world’s fifth largest mobile phone operator.

Vedomosti said Sawiris could get some 20 percent of stock in the new company after the merger.

Egyptian investment firm Naeem Holding said in a research note last month that the deal would benefit VimpelCom by expanding its reach in emerging markets as well as exposing it to a “developed market for the first time.”

Aside from Egypt and Algeria, OT also operates GMS networks in Tunisia, North Korea, Canada, Pakistan, Bangladesh, the Central African Republic, Zimbabwe, Burundi and Namibia.

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 and OT’s net debt was $2.35 billion, according to Naeem’s report.

AP writer Vladimir Isachenkov contributed from Moscow.

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