Risky business as Vimpelcom extends Djezzy pact with Sawiris

25 Oct 2011

According to Kommersant, Russian telecoms giant Vimpelcom has extended a pre-existing risk-sharing agreement with Egyptian telecoms tycoon Naguib Sawiris and his Wind Telecom (formerly Weather Investments) holding company, relating to their co-owned Algerian unit Orascom Telecom Algeria (OTA), which operates under the Djezzy brand name. The agreement – which has been extended for one month, until 15 November – follows renewed speculation that Djezzy is set to be nationalised by the Algerian government. The contract between Weather and Vimpelcom requires Sawiris to pay the Russian firm compensation should Djezzy be sold to the Algerian government.

The hotly contested Djezzy unit has been the source of much speculation in recent years, and came to the fore in 4Q10 following Vimpelcom’s agreement with Egyptian billionaire Naguib Sawiris to purchase Wind Telecom, the holding company with interests in Orascom Telecom and Wind Telecomunicazioni (Wind Italy). Throughout the transaction, which concluded on 15 April 2011, Algiers stated its intention to privatise the lucrative Djezzy unit, and attempted to force Orascom’s hand by hitting the telecoms firm with substantial back taxes. For its part, in October 2010 Vimpelcom conceded that it was happy to sell Djezzy, but only if the Algerian government was willing to match its USD7.8 billion valuation – more than the Russian firm eventually paid for Sawiris’ collective telecoms assets. According to local media reports the Algerian government envisioned a figure in the range of USD2 billion–USD3 billion for the cellco.

According to the terms of legislation passed in 2009, Algiers was supposed to have first refusal over Djezzy if Orascom ever opted to sell the lucrative mobile unit. However, the rancour that has accompanied the recent tug-of-war over the cellco has its roots in a much older issue, which dates back to 2007. That December, Orascom Construction Industries – a company led by Nassef Sawiris, the brother of Naguib – sold its Algerian cement business to French firm Lafarge without consulting the Algerian government. The French company’s presence in the country was said to have exacerbated the fraught relationship between Algeria and its former colonial ruler, and the government held Orascom accountable for what they termed a ‘betrayal’. The general consensus amongst senior Algerian officials is that they want to put an end to the kind of economic liberalisation that allowed foreign investors like Orascom into the country, so that they can reclaim the country’s most lucrative businesses for themselves.