Fridman’s Alfa, Cukurova Get Split Decision on Turkcell

Cukurova Holding AS may be able to recover a 13.7 percent stake in Turkcell Iletisim Hizmetleri AS from Mikhail Fridman’s Alfa Group after a U.K. court ruling that gave both companies room to declare victory.

Alfa Group acted legally when it decided to seize the stake in Turkey’s biggest mobile-phone operator in a dispute over $1.35 billion in unpaid debt, but Cukurova will be given an opportunity to buy back the stake, the U.K. Privy Council in London, a final appeal court for some British Commonwealth countries, said in a summary of its ruling today.

TeliaSonera AB of Sweden, the biggest shareholder in Turkcell with 38 percent, and Alfa’s investment arm Altimo have battled Cukurova over control of Turkcell for almost a decade. Both sides said the court ruled in their favor pending future hearings to determine what remedies should be provided to Cukurova, which has interests in oil, media and truck manufacturing.

“Putting the pieces together, I think there is risk for Alfa,” said Atinc Ozkan, an Istanbul-based analyst for Credit Suisse Group AG who has an “underperform” rating on Turkcell. “The verdict means Alfa will by no means take control of the company.”

With today’s decision leaving the Turkcell ownership situation unchanged, it is unlikely 2010 and 2011 dividends that were blocked will be paid.

Shares Fall

Turkcell fell as much as 8 percent to 10.9 liras, the lowest since Dec. 4 in Istanbul trading. The shares closed down

6.8 percent.

John Reynolds, a lawyer at White & Case LLP in London who represents Cukurova, said the ruling means the company “should have an opportunity to repay the debt, plus interest and costs, and to recover the Turkcell shares” used as collateral.

“The court will now determine how much interest is payable at what rate,” he said.

Cukurova’s may have to pay Altimo as much as $2.56 billion including debt and interest based on an average interest rate of 10 percent over benchmarks, to recover its Turkcell stake, Alexander Balakhnin, an analyst at Goldman Sachs Group Inc.’s Moscow unit, said in an e-mailed note.

Should the Istanbul-based company find money to pay Altimo, it may then have to come up with $932 million to pay TeliaSonera over a 2011 decision by the International Chamber of Commerce, a Paris-based tribunal that resolves commercial disputes, Balakhnin said. And with the ownership situation still split, “it may take time before Turkcell returns to consistent shareholder remuneration.”

Virgin Islands

The Privy Council, which was reviewing an appeal of a British Virgin Islands court decision, ruled that Alfa didn’t act in bad faith and had the right to appropriate the shares.

Evgeny Dumalkin, vice president of Altimo, Alfa’s investment arm, said in a statement that he was “satisfied” the ruling confirmed the company’s position. He said the “unique nature of the case” led to the court granting Cukurova relief from forfeiture.

“Let’s wait for specified court decision which will determine conditions on that,” he said in a telephone interview.

Cukurova signed a $3.3 billion agreement with Alfa in 2005 to finance paying government debts resulting from the collapse of its Pamukbank business. Alfa bought 13.2 percent of Turkcell for $1.6 billion from Cukurova and lent the Istanbul-based company another $1.7 billion, taking what was effectively another 13.7 percent of Turkcell as collateral.

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