Cukurova Must Pay $1.56 Billion to Recover Turkcell Stake

Cukurova Holding AS must pay $1.56 billion to recover a disputed 13.7 percent stake in Turkey’s biggest mobile-phone operator from Russian Alfa Group, raising investors’ hopes for a payout of unpaid dividends between 2010 and 2012.

A ruling by the U.K. Privy Council in London today should allow Cukurova to regain control of Turkcell Iletisim Hizmetleri AS after an almost decade-long battle with Alfa. The sum must be paid to an Alfa unit within 60 days, Judge Jonathan Mance said.

The amount the court required Cukurova to pay is less than the $1.6 billion to $2.3 billion expected by analysts, including Istanbul-based Global Securities. The lower end of the range should enable Cukurova to more easily find financing, Global Securities said in an e-mailed note.

“Our initial reaction is that the Turkish shareholder can secure the funding within the stated date, meaning” it “can regain control of Turkcell,” said Alper Ozdemir, an analyst from Istanbul-based Oyak Securities, in an e-mailed note.

Turkcell has been at the center of a dispute between its founder Mehmet Emin Karamehmet, who owns Cukurova, Nordic operator TeliaSonera AB and Mikhail Fridman, the Russian billionaire who controls Alfa Group. Alfa seized the Turkcell stake when it said Cukurova defaulted on a 2005 loan agreement for which the shares were pledged as collateral.

Clear Ownership

“Dividends are becoming more likely with clear ownership,” Torsten Achtmann, a telecoms analyst at JPMorgan Cazenove in London, said in an e-mailed note. “Once Cukurova has regained the stake in Turkcell we expect that an annual general meeting will be held with board representatives from Turkcell Holdings. We expect that Cukurova will reinitiate dividend payments of Turkcell.”

Dividends from 2010 and 2011 profits had been blocked by TeliaSonera and Altimo, Alfa Group’s telecom unit, in an attempt to force Chairman Colin Williams from the board. Dividends from 2012 weren’t paid because there was no quorum in the shareholders’ meeting on June 24.

Turkish regulators appointed three independent board members of Turkcell in March to help resolve board disputes. A law passed last weekend enables the capital markets regulator to appoint board members to convene shareholders meeting and distribute dividends at companies where shareholders are in dispute.

Blue Sky

Achtmann said he expects dividend payments of $1.5 billion, and in a “blue-sky scenario” they could go up to as much as $3.8 billion should the shareholders agree on a leveraged “special dividend” from the company’s cash position of about $2 billion.

Today’s decision specifies the time limit “to finally clarify shareholders’ status in Turkcell and to completely restore corporate governance,” in the company, Evgeny Dumalkin, spokesman for Altimo, said in an e-mailed statement.

The amount of $1.56 billion decided by the court includes Cukurova’s principal debt of $1.35 billion to Alfa and accrued total interest of $541 million, Dumalkin said. It also includes $329 million paid by a Cukurova to Alfa on March 1, he said.

Asset Seizure

Cukurova “will be able to regain” the Turkcell stake by paying Alfa its debt and interest in 60 days, the company said in an e-mailed statement. Cukurova didn’t specify whether or how it will finance the repayment.

The government seized several assets of Cukurova, which has interest in energy, banking, transportation and construction, in May after the group failed to repay installments on its $455 million debt to a government fund over a failed bank.

The assets, which include media, truck making and packaging units, are being sold to repay the debt.

Turkcell shares rose as much as 4.9 percent to 11.75 liras in Borsa Istanbul, highest level since May 31. Turkcell rose 2.2 percent to 11.45 liras at 4:57 p.m.

Cukurova shouldn’t have to pay interest accrued from 2007 to 2010 because Alfa rejected an early repayment offer and “was only interested in the ownership of the shares and control of Turkcell,” the Privy Council said in a summary of the ruling.

The court included interest of 8 percent over the Libor rate from 2010 through today in the $1.56 billion figure. Cukurova must pay any interest accrued from today until the date of payment.

Complicated Structure

About a third of Turkcell’s shares are traded in Istanbul and New York. Sweden-based TeliaSonera AB is the biggest stakeholder with 38 percent stake at Turkcell. Still, Cukurova controls the company through a complicated shareholder structure while Alfa owns 13.2 percent.

Cukurova and Alfa agreed in 2005 on a finance package totaling $3.3 billion as the Istanbul-based investor was seeking $2 billion to repay debt to the government after the collapse of a bank it had owned.

Cukurova and Alfa signed the agreement, which included a $1.7 billion loan for which 13.7 percent of Turkcell shares were pledged as collateral, after Cukurova pulled out of an earlier accord with TeliaSonera to sell a controlling stake at the mobile-phone operator for $3.1 billion. That prompted the Nordic company to sue to enforce the sale.

TeliaSonera welcomed the U.K. court’s ruling as “a step towards a long overdue resolution of the deadlock.”

It said Cukurova will also have to pay the Nordic company $932 million plus interest over a 2011 decision by the International Chamber of Commerce, a Paris-based tribunal that resolves commercial disputes. The dispute arises from Cukurova’s failure to abide by its agreement with TeliaSonera in 2005, the company said.

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