Russian Court Refuses to Delay Vimpelcom Shares Seizure

A court in Russia has refused to delay the seizure of the 29.9 percent stake in local telco, Vimpelcom that is owned by Norway's Telenor. Earlier this month, a Russian bailiff working with Farimex, an obscure firm with just 0.002 percent stake in Vimpelcom had arrested Telenor's shares in Vimpelcom by serving an arrest order on the National Registry Company, Vimpelcom's Moscow share registrar.

The move has caused political ripples and the Norwegian government holds a controlling stake in Telenor. Russia's Foreign Minister Sergey Lavrov said on a television interview following talks with his Norwegian counterpart that he wasn't happy with the situation, and hopes that the dispute can be resolved shortly. 

The move to seize the shareholding comes after Telenor rejected a US$1.7 billion compensation order by a court in the Siberian city of Omsk over a long running dispute between the two companies over separate investments in Ukraine.

In its suit, Farimex alleged that Telenor-nominated members of VimpelCom's Board of Directors delayed VimpelCom's 2005 acquisition of Ukrainian Radio Systems (URS), a loss-making Ukrainian mobile operator. Telenor says its Board members opposed the acquisition because URS was over-valued and had no credible business plan, and because there was a lack of transparency in the deal.

In April 2008, Farimex, an obscure company registered in the British Virgin Islands and owning just 0.002% of Vimpelcom shares in the form of ADRs (American Depositary Receipts), filed a claim for US$3.8 billion against Telenor in the Khanty-Mansiysk Autonomous District. Following a number of hearings marked by significant procedural violations, the Khanty-Mansiysk court ruled that Telenor should pay damages of approximately US$2.8 billion. Telenor appealed the decision to the Eighth Arbitrazh Appellate Court, which considered the appeal and vacated the Khanty-Mansiysk court's decision, ruling that the case should be heard de novo in Omsk.

The Eighth Arbitrazh Appellate Court has now heard the case and ruled that Telenor is liable for US$1,728,297,207 in damages.

Telenor has accused Alfa Group, which owns 44% of Vimpelcom of using Farimex as a front to take control of the firm by seizing its assets. Alfa Group, controlled by billionaire Mikhail Fridman has denied the allegations.

The main worry is that the seized shares could be sold before Telenor is able to settle the legal dispute in Russia's murky legal system. If sold, then it could prove incredibly difficult to reclaim them from the subsequent owners.

Telenor holds 29.9 per cent of the voting shares (33.6 per cent of the common shares) in VimpelCom through its subsidiary Telenor East Invest AS.

Posted to the site on 24th March 2009