VimpelCom Sells 51% Djezzy Stake to Algeria to Reduce Debt

VimpelCom Ltd. agreed to sell a majority stake in its Algerian unit Djezzy to the North African country’s government, providing it with $4 billion in cash and dividends that will allow it to cut debt.

VimpelCom, co-owned by Russian billionaire Mikhail Fridman and Norway’s Telenor ASA, agreed to sell 51 percent of Orascom Telecom Algerie SpA, or Djezzy, to the Algerian National Investment Fund for $2.64 billion, VimpelCom said today in a statement. Djezzy will also pay a $1.86 billion dividend to VimpelCom’s Global Telecom Holding SAE unit before the transaction closes.

The phone company is striving to reduce $27.5 billion of debt accumulated partly from acquisitions of assets in Italy, Algeria and Asia from Egyptian billionaire Naguib Sawiris. It also ends an ownership dispute in which the Algerian government forbid Djezzy from paying dividends to its parent company and made tax claims on the unit.

“It’s a milestone for the company, ending a three-year-long dispute in Algeria,” VimpelCom Chief Executive Officer Jo Lunder said by phone. The deal will release $4 billion of cash for VimpelCom after tax, Lunder said.

Operational Control

VimpelCom will keep operational control of Djezzy and continue consolidating the asset on its balance sheet. The unit plans to develop a third-generation mobile network to tap growth in Algeria, where it has 17.6 million users.

The government had restricted Djezzy from importing new equipment during the dispute, which stunted its expansion. The deal comes ahead of arbitration that was scheduled to begin next week, Lunder said.

“Resolving the dispute in Algeria is good news for VimpelCom,” Sergey Libin, a Moscow-based analyst at Raiffeisenbank, said by phone. “This will allow to unlock their accounts in the country and bring in new equipment to grow there.”

Djezzy will pay a fine of about $1.3 billion to settle the dispute over tax claims with the government. VimpelCom and Global Telecom will each take a charge of $2 billion in their 2013 results related to the settlement.

Shares of VimpelCom, which trades in the U.S., rose 8.6 percent to $9 yesterday in New York. Russian stocks gained yesterday after talks on Ukraine resulted in an agreement aimed to ease the conflict.

VimpelCom said the transaction gives Djezzy an enterprise value of 5.6 times earnings before interest, taxes, depreciation and amortization. Djezzy has a 53 percent market share in Algeria, the company said.

(Updates with net cash proceeds in first paragraph.)
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