Telenor’s victory in US court declared irrelevant by Alfa

3 Aug 2007

An arbitration court in the US has ruled in favour of Norwegian telco Telenor over Russia’s Alfa Group in a dispute over control of Kyivstar, Ukraine’s largest cellco by subscribers, but Alfa said the verdict would have no impact because it could not be enforced in Ukraine. The New York court ordered the Russian conglomerate’s subsidiary Storm to sell its 43.5% stake in Kyivstar, which is 56.5%-controlled by Telenor, or divest its holdings in competing Ukrainian wireless operators, within 120 days. The two groups are also fighting for control of Russian cellco Vimpelcom, which is 44%-owned by Alfa’s telecoms arm Altimo, with 30% held by Telenor. The Norwegian group objected to Vimpelcom’s purchase of a rival Ukrainian cellco, Ukrainian Radio Systems, in 2005, which has since been rebranded under Vimpelcom’s BeeLine trademark. Golden Telecom, which offers fixed and mobile services in both Russia and the Ukraine, is another regional player partly belonging to the pair (Alfa 30%, Telenor 20%), whilst Alfa also has an indirect interest in another Ukrainian GSM operator, Astelit, through its stake in Turkey’s Turkcell, and a 40% stake in WiMAX provider Ukrainian High Technologies (UHT, Alternet), via its Russian Technologies venture fund. Telenor said the tribunal ruling specifically directed Alfa to sell shareholdings in Turkcell and UHT that exceed 5%.

Alfa rejected the US ruling yesterday. ‘The New York tribunal award cannot change the legal situation around Kyivstar which is to be resolved by means of Ukrainian laws,’ Alexey Reznikovich, chief executive of Altimo, said in a statement. ‘We will proceed in defending our minority shareholder’s rights in Kyivstar and are confident in it both legally and morally,’ he added. According to Telenor, the Kyivstar shareholder agreement was drafted in New York and its arbitration governs all shareholder conflicts. The decision is final and binding for Ukraine, which must uphold it as a member of the United Nations, it claimed. One mooted solution to the dispute would be a share swap between the two groups’ holdings in Kyivstar and Vimpelcom, but when asked about a possible resolution to the conflict, Telenor spokesman Dag Melgaard said: ‘We don’t see the way out as of yet. We see more proof and evidence of Alfa’s mistakes and wrongdoings – they will have some explaining to do.’ Telenor shot down an idea aired in a Moscow Times newspaper article, that the standoff could end in a merger of the two firms’ assets across Russia and eastern Europe, a plan reportedly backed by the Kremlin. In the first quarter of this year Telenor removed Kyivstar from its group accounts, because numerous Alfa injunctions lodged in Ukrainian courts gave it ‘insufficient control’ over the operator, and said it will not access its accounts until Alfa’s Ukrainian lawsuits were withdrawn and existing verdicts in Ukraine declared void. The Norwegian firm also said the US arbitrators ruled that its shareholder agreement with Alfa is binding and the agreement prohibits Alfa from using Ukrainian courts to settle disputes.