MTN Falls Most in Month After Turkcell Lawsuit Threat: Johannesburg Mover

MTN Group Ltd. (MTN), Africa’s largest mobile-phone operator, dropped the most in a month after saying Turkcell Iletisim Hizmetleri AS (TCELL) may file a lawsuit against the company over the acquisition of an operating license in Iran.

The shares fell 1.7 percent to 135.99 rand at the close, and the stock was the most traded by value on the Johannesburg Stock Exchange. MTN has slid 3.9 percent over the past six months compared with a 13 percent gain in the FTSE/JSE Africa All Share Index (JALSH), lowering its market value to 256 billion rand ($33.8 billion).

“If the claim is passed through, it could be a significant amount,”Sameera Cassim, an analyst at Afrifocus Securities Ltd., said by phone from Cape Town. “MTN is suffering with sanctions and the Nigerian economic issues. For something else negative to come up is damaging.”

Turkcell alleges MTN made “improper payments” to an Iranian and a South African government official in 2004 and 2005 to secure its license, Johannesburg-based MTN said in a statement yesterday. MTN said there are no grounds for a lawsuit. With 33.3 million customers, Iran is MTN’s second- largest market by subscribers after Nigeria, accounting for about 9 percent of first-half sales and 8 percent of earnings before interest, taxes, depreciation and amortization.

Turkcell said in an e-mailed response to questions that it’s in talks with MTN and has “good intentions” to help reach a successful conclusion. Existing compensation claims are continuing in the courts, Istanbul-based Turkcell said, without providing further details. It didn’t mention any new claims it planned to make.

Probing Allegations

On Jan. 5 MTN posted its biggest two-day decline in three years in Johannesburg on concern about possible sanctions that may be imposed by the U.S. and the European Union against Iran, where it has a 44 percent share of the mobile-phone market.

Turkcell “believes it has a claim against MTN,” and Turkey’s biggest mobile-phone operator has “indicated an intention to bring such a claim before a U.S. court,” MTN said. “Irrespective of the validity of Turkcell’s claims, the very fact that such allegations have been made is serious,” MTN Chairman Cyril Ramaphosa said in a separate statement. MTN has set up a committee to probe the claims.

“This does further reputational damage to MTN,” Aadil Omar, an analyst at Macquarie Group Ltd., said by phone from Johannesburg. “There is a lot at stake. Iran is a significant market for MTN. The big question is what does Turkcell get out of this. What jurisdiction does the U.S. have over MTN, a South African-domiciled company, in regard to an Iranian matter?”

Deal Reversed

Turkcell won the Iranian auction for the license in 2004 for 300 million euros ($393 million), with MTN the runner-up. The deal suffered a setback in 2005 when Iran’s parliament ordered Turkcell to reduce its stake to 49 percent from 70 percent, ruling that foreign control of the joint venture may threaten national security. Turkcell refused and the license was offered to MTN, which agreed to the lower stake.

Turkcell alleges that MTN encouraged the South African government to back Iran’s civil nuclear power development program at a meeting of the International Atomic Energy Agency in November 2005 and that MTN enlisted South African government support for the supply of military equipment to Iran, MTN said.

“Turkcell has intimated a range of putative claim amounts, the nominal value of which, if formally asserted, would be material,” it said. “No basis for any such claim amount has been substantiated to date. MTN has zero tolerance for corruption.”

A claim against the company could take years to settle, Afrifocus’s Cassim said. Xolisa Vapi, a spokesman for MTN, said the company won’t comment further on the matter.

“It’s only an accusation,” David Lerche, an analyst at Avior Research Ltd., said by phone. “If you look at the time frame, from 2005 to now, I suspect there’s not a very strong case at all.”

To contact the reporters on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net; Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net

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