Exclusive: Orascom seeks to solve Algeria row

By Christian Lowe

ALGIERS (BestGrowthStock) – Egypt’s Orascom Telecom (ORTE.CA: ) may seek international arbitration to end a dispute with Algeria that is holding up its $6.6 billion plan to sell assets to Russia’s Vimpelcom (VIP.N: ), according to a letter seen by Reuters.

Uncertainty over Orascom Telecom’s Algeria-based Djezzy unit — its biggest revenue earner — could sink the $6.6 billion deal, an outcome which would leave it with heavy debts.

In the letter to Algerian Prime Minister Ahmed Ouyahia and three other senior officials, Orascom Telecom Chairman Naguib Sawiris said he was making his last request to the Algerian government to stop pressuring Djezzy.

He said the unit could not continue doing business unless there was an immediate resolution to the row — which centres around tax claims and allegations of currency violations. He said Orascom had already incurred billions of dollars in losses.

Orascom Telecom has reluctantly agreed to negotiations with the Algerian government, which says it wants to nationalize Djezzy.

But Sawiris said it was increasingly unlikely Algeria would pay a fair price — something he said he would not accept.

“We are concerned that we will be left with no choice but to seek redress through international arbitration proceedings,” said the letter, which was dated November 2.

Banking sources said that the Algerian government had said privately it would pay around $2.5 billion for Djezzy, while Sawiris has made public reference to a previous $7.8 billion offer for Djezzy from South Africa’s MTN (MTN.J: ).

“There is a real risk that this deal fails. The Norwegians (Telenor) were dragged into it and I think they are looking for reasons not to support it,” said a London banker, who advises telecom companies.

“At the same time, the Algerian government has been procrastinating over appointing advisers for talks over Djezzy. Naguib is being squeezed on both sides.”

Telenor, which owns 36 percent of Vimpelcom has repeatedly aired doubts over a deal with Orascom. Late last month, it asked for clarification of the merger parameters before Vimpelcom’s board makes a final decision on the transaction.

Analysts say Sawiris may consider selling off Orascom’s assets piecemeal if the talks fall apart and a favorable resolution to Algeria cannot be found.

“The clock would start ticking in a year and a half to two years when lots of (Sawiris) debt comes due in 2013,” said CI capital analyst Amr Elalfy.

Italian mobile company Wind, also part of the proposed Vimpelcom deal, is launching 3.4 billion euros in loans to refinance existing debt.

Wind alone has around $16 billion of outstanding debt, according to Thomson Reuters data.

Algerian officials have said that all back-tax claims and other demands against Djezzy have been in accordance with the law, and that Algerian legislation gives it the right to nationalize the unit.

The Algerian prime minister’s office did not answer phone calls from Reuters.

(For a PDF of the letter in its original French version, click on http://r.reuters.com/kyb44q)

(Additional reporting by Victoria Howley, Sarah White and Alasdair Reilly in London and Alexander Dziadosz in Cairo; Editing by Andrew Callus)

Exclusive: Orascom seeks to solve Algeria row