Russian private equity firm Alfa Telecom, which has rebranded itself as Altimo, is facing criticism from a rival investor that claims Altimo has no right to describe itself as 25% owner of Russian operator MegaFon.
Altimo is seeking to position itself as the vehicle of choice for Western telecoms operators looking to gain entry to the Russian and Eurasian mobile markets. But a robust statement from Bermuda-based investment fund IPOC said that if the company wanted to present itself as a suitable partner for Western businesses it needed to prove that it respected Western business practices. IPOC’s primary owner is Danish investor Jeffrey Galmond.
At the launch, Altimo said its portfolio included stakes in two of Russia’s three largest mobile operators, VimpelCom and MegaFon; a stake in one of Ukraine’s three largest mobile operators, Kyivstar, as well as holdings in Russia’s fixed line operator, Golden Telecom. This week Altimo concluded another controversial deal to acquire a 13.2% stake in Turkey’s largest mobile operator, Turkcell.
That deal, too, is the subject of a dispute with TeliaSonera, which is locked in a legal struggle to gain control of Turkcell, Turkey’s biggest operator, and is suing both Turkcell’s main shareholder Cukurova and Alfa Group for allegedly wrongfully thwarting its rights to a majority stake in the Turkish company.
An IPOC spokesperson said that Altimo has no right to represent itself as 25% owner of MegaFon, alleging that Alfa fraudulently bought its stake from LV Finance after LV had already sold its stake to IPOC. IPOC is currently pursuing Alfa Group and LV Finance to establish IPOC as the rightful owner of the 25.1% stake in MegaFon. IPOC last month won an order from the Privy Council (in the UK) preventing the Alfa Group from selling or dealing with the disputed 25.1% stake in MegaFon.
“Alfa can empire build across Eurasia to its hearts content, but its plans should not include MegaFon. It is not the rightful owner of the 25.1% stake in MegaFon, and no amount of rebranding will change that.
“Whether it is Altimo or Alfa Telecom, it doesn’t matter to us. The respected ICC tribunal in Geneva, upheld by the Swiss Federal Court, exposed LV Finance and Alfa’s collusion in seeking to deprive IPOC of its ownership of the MegaFon stake and confirmed that IPOC is the rightful owner.
“If Alfa Group wants to present itself as a suitable partner for western business it needs to prove it is willing to recognise the validity of agreements and the international arbitration tribunals convened to enforce them.
“The principle we are seeking to uphold is a simple one – no matter where you are in the world you can’t sell the same stake twice.
“It may have a new name, but a leopard doesn’t change its spots. It will still be the same old Alfa Group underneath.”
According to IPOC, LV Finance signed two option agreements in April and December 2001 with IPOC to sell to IPOC 100% of Transcontinental Mobile Investment Limited (TMI), itself the sole owner of CT Mobile (CTM), which holds 25.1% of MegaFon, the third largest Russian mobile operator. In essence, IPOC is arguing that LV Finance and Alfa Group knowingly struck a deal to try and sell the MegaFon stake twice.
IPOC said it has won the only substantive final ruling in the MegaFon dispute to date. The International Chamber of Commerce in Geneva, in a ruling upheld by the Swiss Federal Courts, found that Alfa and LV Finance had knowingly engaged in an illegal scheme to deprive IPOC of its rightful ownership of part of the shareholding in dispute. The ICC has so far found that IPOC does have a claim to its first tranche of options (5.575%) and is due to deliberate on the additional 19.4% stake as a separate matter.
However, IPOC initiated proceedings against Alfa and LV Finance for fraud in the British Virgin Islands, where the three Alfa subsidiaries which currently hold the MegaFon stake are based. IPOC’s initial claim was rejected on jurisdictional grounds, with the BVI court claiming it had no jurisdiction in the case, and this was upheld on appeal.
IPOC is currently seeking leave to appeal directly to the UK Privy Council, whose injunction has already prevented Altimo from dealing or selling the disputed 25% stake . The hearing on this application will now take place on 17 January 2006.
An Altimo spokesperson said that it considered IPOC’s statement to be “not worthy of a reply”. When asked why the company would not address any of the issues raised, the spokesperson said, “I don’t have to tell you why. We are not making any comment.”
Alfa Telecom has said before that it considers it bought its stake in good faith from LV Finance
At the re-branding launch, Altimo’s (ex-Alfa Telecom) chief executive Alexey Reznikovich said, “Altimo is the leading private equity investment firm in Russia and the CIS. My vision is to be the premier partner of choice for global telecoms companies seeking to venture into new and emerging markets across Eurasia. We will achieve this by sticking to our ethos of pursuing and creating value: in our investment, for our partners, and in the companies in which we invest.”
Altimo said its market capitalisation assets exceeds US$8 billion. The company’s subscriber footprint totals 95 million across Russia and the CIS.
Altimo sees immense opportunities in the future for development in its markets. The Russian telecoms market alone is forecast to exceed $22 billion by the end of 2005 whilst the markets in the CIS and Eurasia remain under penetrated and poised to develop rapidly.
Mobile subscriber rates in Russia alone will have risen from 40 million to 60 million this year and similar growth levels are predicted for the CIS and other emerging markets.
Reznikovich, celebrating the recent Turkcell deal, said, “I believe that a partnership between Altimo, with our expertise in telecoms investment in these markets, and a global telecoms company, with expertise in telecommunications operations, would be an immensely profitable partnership”.