FOCUS: Telenor on way to quit Russia’s VimpelCom owner cap, L1 seen to stay

By Yekaterina Yezhova

MOSCOW, Apr 11 (PRIME) -- Amsterdam-domiciled VimpelCom Ltd., the sole owner of Russian mobile operator VimpelCom, will buy a preferred stake owned by Telenor on Friday, and the Norway firm intends to quit the asset in the future. Telenor could sell its remaining stake to a strategic investor, while tycoon Mikhail Fridman’s LetterOne seems to keep the asset for a while, analysts said.

VimpelCom Ltd. will redeem 305 million preferred voting shares – the only preferred shares the company has – owned by Telenor, which abstained from converting them into common stock, at a redemption price of U.S. $0.001 per share and the shares will cease to be outstanding. After the deal, VimpelCom Ltd. will have no preferred shares, which now carry only voting rights and no dividends.

“Telenor said that it won’t convert its preferred shares. It seems that this refusal is explained by economic futility of the procedure, because it would have to pay a market price for the conversion of preferred stocks into common shares otherwise. In theory, the conversion could have worsened relations with antimonopoly regulators that would have delayed withdrawal from the asset,” Finam financial analyst Timur Nigmatullin told Russian Connection.

The Norwegian company’s stake in VimpelCom Ltd. will decrease from its current voting stake of 43% to 33%, or will be equal to the current volume of common shares.

In late March, VimpelCom Ltd. notified the U.S. Securities and Exchange Commission of the possible sale or carve-out of up to 89.2% of its common shares. The statement was said to be of a technical character in compliance with the U.S. laws, as the company’s depositary receipts are traded on the NASDAQ stock exchange.

Telenor CEO Sigve Brekke said in early April that the Nordic region’s largest phone company is in talks with possible bidders for its stake in VimpelCom Ltd. and is targeting countries such as Vietnam and Indonesia for future growth. The market then valued the stake at $2.5 billion.

“We are not dumping our shareholding. We want a fair price,” Brekke told Bloomberg in an interview. “We don’t want to be sitting there as a financial shareholder without any influence on the real operations…We’re better off redeploying those assets in markets where we can add value and where we also see growth.”

KIT Finance Broker analyst Anna Ustinova said that if Telenor had agreed to convert preferred stocks into common ones, it would have paid $1.29 billion. “As the Norwegian company said it intends to withdraw from VimpelCom Ltd., expenses on the conversion would have looked quite illogical,” she said.

LetterOne – whose voting stake in VimpelCom Ltd. would have grown to 56.2% from 47.9% after the abolition of preferred shares – transferred 8.3% of common shares, or 7.1% of voting capital, to Stichting Administratiekantoor Mobile Telecommunications Investor (SAMTI).

It is a Dutch legal entity with limited liability, but no members or share capital that exists for a specific purpose.

Below is the current structure of VimpelCom Ltd.’s owners:

Stakeholder	Common shares, %	Voting rights, %
LetterOne	47.9	40.8
Telenor	33.0	43.0
Stichting	8.3	7.1
Free float	10.8	9.1

“In such a way, LetterOne’s interest will remain unchanged. With a view of a historically proved ability of Russian beneficiaries to control VimpelCom Ltd. even without a controlling stake in the pocket, we doubt that the move will beak the status-quo,” Sberbank CIB analyst Sergei Goncharov said in a research note.

“Despite an independent position of the stichting, we think that its directors, who will manage the stake, will act in line with the former owner’s strategic views. LetterOne could have transferred the stake to avoid the obligation to make an offer to other shareholders after breaking through a 50%-ownership threshold.”

Nigmatullin at Finam said that the transfer of the stake to the stichting “indirectly points to the fact that LetterOne is not ready to abandon the asset and just wants to optimize expenses”.

“I think that chances are high at the moment that LetterOne could buy Telenor’s stake in VimpelCom Ltd., but through an intermediary,” the analyst said.

Ustinova at KIT Finance Broker said that Telenor’s stake in VimpelCom Ltd. could be of interest to a strategic market player. “Hong Kong-based Hutchison, which wants to merge its Italian assets with those of VimpelCom Ltd., could act as a possible buyer,” she said.

“Most likely, the reshuffle in VimpelCom Ltd.’s stakeholders will logically result in a revision of a long-term strategy of the company itself and its regional units, including Russia’s VimpelCom. I cannot exclude a revision of the dividend policy,” Nigmatullin at Finam said.

“If in the course of the change of stakeholders VimpelCom Ltd. gets a majority owner, we could see some growth in its quotes as investors re-estimate risks.”

The flip side is that VimpelCom Ltd. has been also involved in a corruption investigation in Uzbekistan. The company earlier agreed to pay a near-record $795 million to settle U.S. and Dutch claims that it had bribed officials to enter the telecom market of the former Soviet republic.

VimpelCom Ltd.’s ADRs lost 34% over the year, but gained 15% since the beginning of 2016, closing at $3.76 on April 7.

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