Telenor Ups Pressure on Ukraine Operator Dispute
Following the ongoing shareholder dispute at the Ukrainian operator, Kyivstar - Telenor announced yesterday that it will deconsolidate Kyivstar and to present Telenor's interests in the company in one line, as an investment in the 2006 Annual Report. Telenor owns 56.5% of Kyivstar, and will still own the stake - it is just changing how it accounts for the stake in its financial statements.
The Alfa Group affiliate Storm, owning 43.5 per cent of Kyivstar, has persistently boycotted Kyivstar's shareholder and Board meetings for the past two years.
As a result, there has not been a valid quorum at either shareholder meetings or Board meetings in Kyivstar for the whole of 2006. Telenor has nevertheless remained in control of the operations in Kyivstar throughout the period up to 29 December 2006.
Alfa Group affiliates, Storm and Alpren, commenced legal actions in Ukrainian courts in late December 2006 and in January and February 2007 disputing Kyivstar's authority to appoint auditors. These actions have led to injunctions purporting to prohibit Kyivstar's management from providing financial information to Kyivstar's international auditors and shareholders, including Telenor. The injunctions also purport to prohibit the use of financial information already provided by Kyivstar, and to prohibit Kyivstar and Telenor's auditors from carrying out any audit work in relation to Kyivstar's year-end IFRS financial statements. A third injunction purports to prohibit Kyivstar from disseminating any financial information that has not been approved by Kyivstar's board or shareholders, and to prohibit anyone from using any such financial information in their consolidated accounts.
Telenor is contesting these actions in the context of its ongoing arbitration proceedings in New York, as well as, to the extent permitted by the Kyivstar shareholders agreement, by seeking alternative legal redress.
Graham Ruck of Merrill Lynch noted that Telenor is looking at the situation from a long term perspective putting the pressure on Alfa to blink first in any possible deal to resolve the situation. Particularly, Telenor has explained the situation as a "temporary deconsolidation" and "mostly an accounting issue". The easy way out for Telenor would be to swap its VIP stake to Alfa in exchange for the disputed Kyivstar stake. However, this would give away Telenor's 'call option' on Russian growth, and would allow VimpleCom easier access to the Ukraine.
The growth of Bangladesh and Pakistan, already poised to take over from Kyivstar for Telenor's growth, will now become even more important. On Merrill Lynches estimates, Bangladesh and Pakistan will now account for 65% of Telenor's EBITDA growth in 2008E, up from their previous estimates of 55%."
Posted to the site on 22nd March 2007