FOCUS: Russia guards local investors’ interests in VimpelCom sale

By Yekaterina Yezhova

MOSCOW, Feb 13 (PRIME) -- The Russian government’s foreign investment commission has allowed VimpelCom’s local management to acquire the mobile operator from Dutch holding company VEON for 130 billion rubles with some conditions in the interests of national investors, analysts said.

“In our view, the government commission naturally tries to protect the Russian investors’ interests by posing additional terms for the VEON-VimpelCom deal. After the sale, VEON will have no more assets in Russia, and it is better to settle everything with the holding company before the transaction ends to see all the terms respected,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

Digital Development Minister Maksut Shadayev said earlier in February that the government commission allowed VimpelCom’s top managers headed by its CEO Alexander Torbakhov to acquire the company on condition of a purchase of at least 90% of the Eurobonds issued by VEON for Russian investors. The minister said he expects the bonds to be bought during a month or two making a decision on the deal possible.

VEON said in late November that it agreed to sell VimpelCom, working under the Beeline brand, to the local top managers and estimated the Russian asset at 370 billion rubles on the 3.2x EV/ EBITDA multiple expected for 2022, yet VEON is to receive only 130 billion rubles with the remaining money to be written off as debt. The deal is to be completed by June 1.

According to July–September 2022 statement, VEON’s net debt widened by 0.7% on the year to U.S. $8.2 billion as of September 30.

“We believe the sale of our Russian business represents the optimal solution for VEON, its Russian operations, and all stakeholders, including customers, shareholders, creditors, and employees both in and outside of Russia. We are pleased to have reached this significant milestone in the transaction, which is expected to be accretive to equity, reduce VEON’s debt, and improve its credit profile,” VEON CEO Kaan Terzioglu said on February 8 in a statement.

The U.K. insolvency court cleared VEON to restructure its bonds by extending the forthcoming payments for eight months. According to VEON’s documents, the $529 million issue with a 5.95% coupon will fall due on October 13 instead of February 13 and the $700 million issue with a 7.25% coupon on December 27 instead of April 26.

“The new owner will have to redeem part of the bonds this year. The new owner will be likely able to redeem the bonds maturing in later years by replacing them with local bonds, which will comply presumably with the redemption terms,” Anton Kulikov, head of the bonds center at BCS World of Investment, told PRIME.

“The deal amounts to 130 billion rubles, VimpelCom’s EBITDA stands at about 110–120 billion rubles, or $1.5 billion, with a low debt burden of 1.0õ Net Debt/EBITDA, according to the presentation for July–September 2022. It enables us to suppose that the new owner will be able to repay partially the debt on the bonds duly or adjust the amount of the purchase.”

Mikhailin at Veles Capital said that VimpelCom would most likely use borrowed money to buy VEON’s bonds because it does not have the needed amount on its books.

“As a result of the deal, VimpelCom’s already heavy debt burden will mount dramatically. The use of the scheme is clear, there are evident problems now with movement of capital between Russia and the West, which is why another way of purchase of the asset was needed,” the analyst said.

“The full announced value of VimpelCom including the debt amounts to 370 billion rubles, which is the enterprise value (EV). The estimation implies the EV/EBITDA 3.2õ multiple, which, we think, is fair, especially in view of the total decrease of the value of Russian assets over the recent year.”

VEON’ quotes leaped by 59.2% since the beginning of 2023 to $0.78 on Nasdaq on February 9 and by 33.2% to 38.35 rubles on the Moscow Exchange.

“We expect no significant changes in VimpelCom’s strategy after the deal. The company was losing its positions earlier and was trying to reduce its churn rate by improving its infrastructure. The focus will probably remain. On the whole, VimpelCom has always worked rather independently from the parent company and the subscribers will hardly notice any change,” Mikhailin told PRIME.

The analyst said that the country’s mobile connection market is changing like the economy. “Many investors decided to get rid of their assets in the country because of additional risks for themselves and the imposed restrictions, which results in property re-distribution in many industries,” he said.

“This process can also take place in the telecoms industry. It is probable that if the former owners decide to sell assets in Russia and cut economic ties entirely, other market participants will buy the assets. In its turn, it will lead to further consolidation and easing of competion or the status quo will remain.”

(72.7923 rubles – U.S. $1)

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