Vimpelcom debt adds to ORSTF downside

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Vimpelcom has ramped up its borrowing activity as it prepares to absorb deeply indebted frontier markets phone giant Orascom Holdings. Not really a great sign. VIP, Russia's No. 2 cell phone carrier, has announced that it is beefing up an ongoing bond offering from 10 billion rubles ($333 million) to a total of 20 billion rubles.

 

With a coupon rate of 9% to 9.5%, this is great news for investors looking for high yields, and these bonds may find their way into emerging debt portfolios like EMB and PCY as well. However, for stock-oriented investors, this is all part of the not-so-pleasant prospect of VIP paying over $6 billion to merge with Egypt-based Orascom Holdings ORSTF,, which supports phone networks from North Africa across the Near East and into South Asia. Whether or not the deal even gives VIP access to the crown jewel of the ORSTF empire -- troubled Algerian phone company Djezzy, which may end up taken over by the local government -- remains unclear.

However, given the amount of debt already on the table, it is not encouraging to see VIP step up its borrowing ahead of the deal. ORSTF itself is burdened with about $4 billion in debt, while Italian subsidiary Wind owes over $11 billion. VIP shareholders should get a chance to vote on the proposed merger later this year. Meanwhile, the stock seems well overdue for a pause . . . at best.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks , International , Investing Ideas

Referenced Stocks: EMB , ORSTF , PCY

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