US court decides in favour of Telenor in Kyivstar case; ruling dismissed by Alfa

24 Nov 2008

A federal court in New York has ordered Russian conglomerate Alfa to either sell its shares in Ukrainian mobile operator Kyivstar within 90 days, or divest its shareholdings in excess of 5% in another Ukrainian cellco, Astelit (owned via a stake in Turkey’s Turkcell), and WiMAX operator Ukrainian High Technologies. The court found Alfa to be in contempt of a previous US arbitration court ruling in favour of Alfa’s Norwegian shareholding partner Telenor, and imposed fines starting at USD100,000 a day from 29 November and doubling every 30 days until it complied with the verdict. Alfa previously said that it would comply with the arbitration order to dispose of stakes in Turkcell/Astelit and Ukrainian High Technologies, but it appears that this did not happen. Reuters reports that in the most recent court decision, Judge Gerard Lynch of the Southern District of New York called Alfa’s legal stance a ‘sham’ that had ‘paralysed’ Kyivstar and also harmed Telenor, and also called the Russian firm’s actions ‘outrageous’. Claiming to be acting under Ukrainian court orders, Alfa has boycotted Kyivstar board meetings for several years, preventing the GSM operator from setting dividends and approving annual accounts. Senior Vice President of Alfa’s telecoms arm Altimo, Kirill Babaev, told Reuters that ‘We have done all we could to comply with the court orders…However, as there is a direct ban imposed by a Ukrainian court on disposing of our Kyivstar stake, we had no right to attend Kyivstar meetings…This is why we also consider the decision on fines as absurd.’ Telenor maintains that Ukrainian courts have no jurisdiction over Kyivstar since its shareholders’ agreement specifies that disputes should be resolved in US courts.

Telenor holds 56.5% of voting shares in Kyivstar, which is Ukraine’s largest cellco by subscribers, while Alfa Group-controlled Storm owns the other 43.5%. Alfa also holds 44% of voting shares in US-listed Russian mobile group Vimpelcom, in which Telenor owns 29.9%; Vimpelcom wholly owns another Ukrainian GSM operator, Ukrainian Radio Systems (URS, branded as Beeline), which it bought in 2005, sparking a legal battle with Telenor. The Norwegian group has appealed against a recent Siberian court ruling which awarded USD2.8 billion in damages to Vimpelcom as compensation for negative effects on its business caused by Telenor’s opposition to the acquisition of URS.