FOCUS: VEON’s sale of Russian asset to local mgmt seen as win-win deal

By Yekaterina Yezhova

MOSCOW, Dec 12 (PRIME) -- A 130 billion ruble sale by VEON of its Russian business to its local executives will be mutually beneficial in the current climate, analysts said, adding that VimpelCom may later go public on the Moscow Exchange.

“VEON’s capitalization amounted to about U.S. $3 billion in February, and now it is a third of this sum because the foreign shareholders were deprived of the possibility to get income from their Russian property,” Georgy Vashchenko, deputy director of the research department at investment company Freedom Finance Global, said in a note.

“The sale of VEON’s Russian division, VimpelCom, is beneficial to all the participants of the deal. VEON will be able to service its obligations with the money received from the sale of its Russian asset, valued significantly higher than the current market value.”

VimpelCom, working under the Beeline brand, said in late November that a group of its top managers headed by General Director Alexander Torbakhov signed an agreement to buy the company from Amsterdam-headquartered VEON for 130 billion rubles. The partners intend to close the deal by June 1, 2023, yet the deadline can be postponed.

Torbakhov said that nothing would change for the operator’s clients, counting 46 million as of the end of September, and the company will stick to its strategy.

VEON earns half of its revenue in Russia – the holding company’s total revenue amounted to $2.077 billion in July–September and its revenue in Russia reached $1.189 billion. VEON’s other top bread-earning markets are Ukraine and Pakistan, according to its quarterly statement. VEON’s net debt amounted to $8.207 billion as of the end of September.

“The deal, like many similar deals in large Russian companies, is a forced measure. The move was caused by dramatic toughening of the external sanctions against the Russian Federation. Evidently, Beeline’s price would have been much higher in better times,” investment company Algo Capital senior risk manager Vitaly Manzhos told PRIME.

“Details of the deal and sources of its financing are not disclosed. Judging by media reports the deal will mainly or even entirely consist of a partial payment of the parent company’s debt. In other words, it may be cashless. Since VimpelCom plans to issue replacement bonds, the deal would be ‘a debt transfer’ to the asset’s new owners.

“It should be understood that the sale of Russian subsidiaries of a number of companies to the management is not equal to a sale in a normal situation. Such deals may be reversible should the business climate improve in the country. Media also reported that VEON may get profit if it resells VimpelCom at a higher price during 30 months after the deal is closed. There are also other terms of termination of the agreement.”

Manzhos also said that given all the factors, the amount of the deal could be seen as acceptable in the current conditions.

“We should also keep in mind that VimpelCom has its own debt burden, which amounted to 167 billion rubles as of the end of 2021. VimpelCom owed 130 billion rubles to its parent company. This is why in addition to the change of the owner, the matter of the external debt settlement is also on the agenda,” the analyst said.

Investment company Sberbank CIB said that “VimpelCom is set to be spun off and assume part of the holding company’s Eurobond debt, which should unlock payments to local holders of VEON Eurobonds.”

Vashchenko at Freedom Finance Global said that VimpelCom’s future new owners had not announced any plans to hold an initial public offering.

“The market’s current situation does not contribute to growth of capitalization of new issuers. But I think it would be an interesting idea to bring VimpelCom to the bourse in several years, when international capital markets are open. VEON’s securities will probably continue to trade on the stock exchange, but investors should mind the change in the assets,” he said.

Manzhos at Algo Capital said that VimpelCom’s management would be interested in placing part of their stakes on the bourse. “It is not ruled out that VimpelCom’s shares will trade on the Moscow Exchange in some time and replace VEON’s shares, which would be most likely delisted,” he told PRIME.

VEON has gained 15.9% over a month on the Moscow Exchange to 30.25 rubles on December 8 and 52.6% on Nasdaq to $0.58.

(62.3813 rubles – U.S. $1)

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