Orascom sale still on hold in Algeria

Bids for the financial advisory contract on the deal for the Algerian government to buy Orascom Telecom Algeria (OTA) have been submitted by a mix of international financial institutions, law firms and accountants. The lowest prices were submitted by Curtis Mallet Prevost Colte & Mosle, a US law firm, with the more expensive including those from Rothschild and Renaissance Capital, British and Russian investment banks respectively. The successful company, which will be chosen on the basis of a combination of technical and financial criteria, will carry out due diligence on OTA, value the company and execute the sale. The winning bidder will also help the government choose a partner to operate OTA's mobile-phone business, Djezzy.

Contrary to earlier reports, the chief executive of a Russian consortium, Alfa Group, Alexei Reznikovich, said in early December that the protracted sale of Djezzy will not affect VimpelCom's appetite to merge with Weather Investments (now called Wind Telecom), which controls OTA. Altimo, which is the telecommunications investment arm of Alfa Group, has a 44.7% share in VimpelCom. There had been intense speculation that the company was reluctant to back a merger if OTA were not part of the deal, but Mr Reznikovich told reporters that Algeria's proposed purchase of OTA would not prevent the merger going ahead, and that he would welcome collaboration between VimpelCom and the Algerian government. The Weather deal will close "in the middle of the first half" of 2011 as long negotiations with banks to refinance US$24bn in debt, which VimpelCom would carry if the deal goes through, can be brought to a successful resolution, said Mr Reznikovich.

But the two deals are unlikely to dovetail as neatly as Mr Reznikovich suggests. VimpelCom shareholders are unlikely to want to close the Weather deal without more clarity on Djezzy's future, and in particular its value. VimpelCom values Djezzy at US$7-8bn, whereas the government is understood to want to pay no more than US$2-3bn. The Orascom chairman, Naguib Sawiris, has stated that the government is attempting to run down the value of OTA ahead of the planned sale, a claim supported by telecoms analysts with knowledge of the Algerian market.

The resolution of Djezzy's future is likely to take several months. Orascom has been trying to sell its local business since early in 2010, and there have already been delays to the award of the financial advisory, which bidders expected to be made by the end of November. The tender was the "third or fourth" time bids had been requested by the government, according to one bidder. The bidders themselves have suggested widely ranging timescales to prepare the sale, from two months, proposed by Ahmed Mansour & Associés, a Tunisian accounting firm, to six months, suggested by Rothschild. According to the post and communications minister, Moussa Menhamadi, the deal will go ahead in the first half of 2011, but this could well be subject to further delays.

The government's preferred outcome for the sale also remains unclear. One possible course of action is for it to buy a share of Djezzy and agree that VimpelCom can own the balance and operate the firm. But the government could also decide to select a different partner, either by direct negotiation or through an open tender. In this case, MTN Group, a South African company which attempted to buy Djezzy in April, may restate its interest, and other telecoms groups may also choose to bid. Orascom Telecom, OTA's Egypt-based parent, is meanwhile still locked in a dispute with the government over the alleged non-payment of taxes. The government's claim that Orascom owes US$230m in taxes for 2008 and 2009 is "unfounded", according to a recent statement by the company, and it will take "all necessary legal steps" to challenge the assessment. In late December Mr Sawiris said that Orascom may file for international arbitration in 2011.