Vodafone Congo Unit Faces Shareholder Battle on $484 Million Capital Plan

Vodafone Group Plc, the world’s largest mobile-phone company, faces a shareholder battle in the Democratic Republic of Congo.

The U.K. company’s Congolese unit is seeking a $484 million capital injection in the business through a share sale, a move that the venture’s minority partner, Congo Wireless Networks, or CWN, says would dilute its stake.

Shareholders of the venture, Vodacom Congo Sprl, have been invited to meet tomorrow at the Johannesburg office of Vodafone- controlled Vodacom Group Ltd. to discuss the new funding, according to a March 15 letter from Vodacom Congo Managing Director Godfrey Motsa. The letter and proposed minutes for the meeting were provided to Bloomberg by CWN’s lawyers.

“With this $484 million recapitalization, CWN will see its part diluted,” said Azarias Ruberwa, a legal adviser to Delaware-registered African Wireless Network, which owns 60 percent of CWN. Ruberwa is a former vice president of Congo.

The meeting comes amid a continuing dispute between Vodacom, which owns 51 percent of the venture, and CWN, which holds the rest. CWN says Vodacom owes it more than $166 million, according to a complaint filed on Dec. 17 with Congo’s attorney general. Vodacom denies the claim.

Vodacom spokesman Richard Boorman, declined to comment on the document. “I can’t confirm any specific information on the status of discussions we are having with our shareholders in the Congo,” he said.

Mobile Penetration

Vodacom Congo ranks behind Zain as the second-biggest mobile operator in the country, the continent’s fourth-most populous nation. About 9 million Congolese, or 13 percent of the population, own a mobile phone, according to Informa Telecoms & Media, a London-based research company.

MTN Group Ltd., Africa’s largest wireless company, and France Telecom SA’s Orange unit have expressed an interest in operating in the country.

Tension between the Vodacom Congo shareholders has come to a head as the joint venture needs cash to expand. Vodacom said in January it won’t invest any more money in the country while its relationship with its partners remains “combative and dysfunctional.”

In the draft minutes for tomorrow’s meeting, Vodacom proposed increasing the Congolese company’s share capital to $485 million, from $1 million now, through the issue of new shares “to be paid up in cash or offset against certain liquid and payable debts owed by the company and set out in its books.” The meeting will also consider converting Vodacom Congo into a public company, according to the letter.

Lack of Funds

CWN’s shareholders don’t have the money to support their half of the recapitalization, Ruberwa said on March 30 in Kinshasa, the Congolese capital.

Alieu Conteh, the chairman of CWN, said the need for recapitalization was due to “bad management” and may dilute his company’s stake in Vodacom Congo, which may force CWN out of the venture.

“In our case you cannot accept a capital call because it is not managed fairly for us,” Conteh said.

CWN accuses Vodacom of usury, fraud, forgery, the use of false documents and abuse of trust, mainly over a loan that allegedly resulted in CWN incurring inflated interest and fees. CWN claims the joint venture is owed more than $166 million in dividends and is asking for $25 million in damages and 8 percent interest on the disputed payments.

Investigation Delayed

Separately, Donald Segretti, a U.S. investor in CWN, said he may sell his stake because of the dispute.

“I do not want to remain a partner in a company with Vodacom and I don’t want to stay in an investment in Congo where the laws are questionable,” Segretti said by phone on March 29 from Los Angeles, where AWN has its headquarters. “We would like a fair price to get out of this investment.”

Vodacom Congo is worth about $1.5 billion and CWN would consider offers amounting to half that, Conteh said.

An investigation by the Congolese attorney general into the dispute between Vodacom and CWN was delayed after Congolese Prime Minister Adolphe Muzito wrote both shareholders, asking that they resolve the disagreement “quickly” because it was creating a “negative image” of Congo’s business environment.

In a Feb. 2 letter to Vodacom Congo, he asked shareholders to a meeting in Kinshasa.

Conteh confirmed the group’s shareholders met separately at the prime minister’s office in February. Boorman declined to comment on the meeting.

Newbury, England-based Vodafone owns 65 percent of Vodacom. Vodacom shares fell 21 cents, or 0.4 percent, to 56.32 rand as of 10:50 a.m. in Johannesburg, giving the company a market value of 83.8 billion rand ($11.5 billion).

To contact the reporter on this story: Nicky Smith in Johannesburg at nsmith38@bloomberg.net.

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