UPDATE: Orascom Telecom Says Algeria Crt Upholds $1.3B Djezzy Unit Fine

Monday, May 28, 2012

--Algeria court of appeal upholds $1.3 billion fine against Djezzy

--Move underscores Orascom Telecom's fraught relationship with Algeria

--OT parent VimpelCom negotiating with Algeria over Djezzy nationalisation

(Recasts. Adds analyst comment, background throughout.)

By Shereen El Gazzar

Of ZAWYA DOW JONES

DUBAI (Zawya Dow Jones)--Egypt's Orascom Telecom, or OT, said Algeria's Court of Appeal upheld a $1.3 billion fine handed down to its Djezzy unit for an alleged breach of foreign exchange regulations, a decision that underscores OT's fraught relationship with authorities there.

"OTA [Orascom Telecom Algeria] has been ordered to pay the whole amount of the fines," OT said in an emailed statement Monday, referring to a previously disclosed claim lodged in 2010 by Algerian authorities. A criminal custodial sentence against a member of Djezzy's senior executive team has also been suspended, it added.

Orascom Telecom Algeria is taking the necessary steps to file an appeal with the Algerian Supreme Court, OT said. The lodging of the appeal will provisionally suspend the judgment, it added.

Earlier this month, OT said Djezzy, its biggest revenue generator, continued to face a number of challenges during the first quarter of 2012. The Bank of Algeria instructed banks not to process any overseas foreign currency transfer by Djezzy, a move OT said prevented the importation of goods which were necessary for maintenance purposes and for network capacity expansion.

Russian mobile operator VimpelCom Ltd. (VIP), which owns 51.7% of Orascom Telecom after striking a $6 billion deal with OT's parent company last year, is currently locked in negotiations with the Algerian government over compensation for the planned nationalisation of Djezzy.

Orascom Telecom's relationship with Algerian authorities has long been a rocky one. They have been locked in a long-term dispute that dates back to November 2009 when Algeria charged Djezzy with hundreds of millions of dollars in back-tax claims.

"The most worrying aspect of this is that the [court of appeal] move is likely to sour relations between VimpelCom and Algeria further and cast even more doubt on the acquisition deal," said Ahmed Adel, a senior telecoms analyst at Naeem Brokerage in Cairo. "We estimate that under a no-deal scenario, an ongoing arbitration case and a $1.3 billion fine overhang, Djezzy's valuation would fall to below $2.8 billion, implying a valuation for OT of just EGP2.8 per share," Adel added.

OT shares last traded 3.4% lower at EGP3.09.

-By Shereen El Gazzar, Dow Jones Newswires; +971 444 61684; Shereen.elgazzar@dowjones.com; Twitter: @ZDJnews

(END) Dow Jones Newswires

28-05-12 1047GMT