As Algeria ramps up the pressure on Orascom, it now looks unlikely that the company's crown jewel Djezzy will be part of a planned $6 billion telecom merger with Russia's Vimpelcom.
After Russian president Vladimir Medvedov himself failed to get a firm promise that Algeria will let VIP take over Djezzy, Algiers turned around and demanded $193 million in currency trading fines from the troubled wireless company. Added to a $230 million tax bill, Djezzy -- and already debt-laden Orascom ORSTF -- now owe over $400 million to the Algerian government.
What is really at stake here is that Algeria covets Djezzy for itself. The country has right of first refusal on any attempts by a foreign entity to buy any Algeria-based business, and most recently squelched a $9 billion bid from South Africa's MTN, MTNOY, to buy ORSTF and Djezzy.
In order to avoid deeper problems, VIP has reportedly offered to sell Djezzy to Algeria for $7.8 billion, which is of course completely unreasonable. Algeria has suggested a price more along the lines of $2.5 billion. As it is, Algeria can always simply nationalize the business and alienate foreign capital -- a real risk in emerging markets.
Either way, Djezzy generates 40% of ORSTF revenue. Unless it comes along with the rest of the company, VIP's controlling shareholders may rethink the deal. At the very least, ORSTF may end up as a much smaller piece of the combined entity, which would solve many problems at once.
VIP has been the center of bitter dispute between venture partners Alfa and Telenor. TELNY, that only resolved by the complete restructuring of the company this spring. Rather than re-open those wounds with a new equal partner in the mix, Egyptian magnate Naguib Sawaris, restructuring the new deal may make more sense.