Russian telecoms operator Vimpelcom has signed a non-binding memorandum of understanding (MoU) with Algeria’s Finance Ministry to explore the possible sale of a 51 per cent stake in Orascom Telecom Algeria (Djezzy) to the North African state.
Djezzy, a subsidiary of Egypt-based Orascom Telecom Holding (OTH), which was acquired by Vimpelcom in March 2011, was the cause of much tension during the acquisition talks. VimpelCom owns 51.7% of OTH, which in turn, owns 96.81% of Djezzy.
As the country’s largest mobile operator and Orascom’s most profitable subsidiary, Vimpelcom was keen to keep the Djezzy in its books, but its plan has been derailed by the Algerian government, which is eager to nationalise the operator.
In a statement issued to the press, Vimpelcom states it will “consider selling a majority stake in OTA subject to an acceptable price and satisfaction of other conditions. The two sides have also agreed to consider alternative acquisition scenarios that might be mutually beneficial to both parties”.
Both parties will now undertake a valuation of Djezzy. In September, local newspaper Tout Sur Algerie reported that law firm Sherman & Sterling had finalised its valuation for $7bn, while the Algerian government has previously stated it would be willing to pay $2bn-3bn for Djezzy.
The difficulties between OTH and the Algerian government date back about three years and seems to be more politically and personally motivated at OTH’s founder Naguib Sawiris. OTH has been unable to pay itself dividends from Djezzy’s takings since 2008 and it is thought up to $700m in dividends has stayed in Algeria.
“No government will pay $7bn to nationalise an asset, it does not make any kind of sense. Djezzy’s cash is lying in the country, a partnership with the government where Vimpelcom will still own 46 per cent is better for them,” says Kunal Bajaj, telecoms analyst at UK-based HSBC.