KIEV, Oct. 3 â€“ Norwayâ€™s telecoms giant Telenor ASA suffered a defeat in Ukrainian Supreme Court Tuesday in a battle with a Russian company for control over Ukraineâ€™s leading cell phone operator.
The court ruled that Russiaâ€™s Alfa Group, a minority shareholder in Kyivstar, Ukraineâ€™s No. 1 cell phone company, must have the same management rights as Telenor, which owns a majority stake.
The highly controversial ruling may deal a blow to Ukraineâ€™s investment climate by discouraging Western investors concerned over the possibility of losing control over their assets in the country.
The development also underscores aggressive expansion of Alfa Group, one of the richest Russian business groups, backed by the Kremlin, towards building a telecommunications giant across the former Soviet Union.
â€śOne can only guess about the devastating potentialâ€¦ if Ukraine loses confidence of the world telecommunications giant,â€ť Henadiy Kurochka, the head of CFC Consulting and an advisor to Telenor, said.
Kyivstar, estimated by industry analysts to be worth between $5 billion and $8 billion, has been expanding rapidly and is competing with UMC, another cell phone company entirely owned by MTS of Russia.
The ruling is a culmination of a year-long shareholder war between Telenor and Alfa Group for control over Ukrainian and Russian mobile communications assets. Both companies are minority shareholders in Vimpelcom, Russiaâ€™s No. 2 cell phone operator, which is de-facto controlled by Alfa Group through a loyal management.
Telenor, which owns a 56.5% stake in Kyivstar, is currently incorporating the Ukrainian cell phone companyâ€™s financial statistics into its own books. But Alfa, which owns 43.5% of Kyivstar, has been trying to change that by merging Kyivstar and Vimpelcom, creating a giant that would apparently be controlled by Alfa through a loyal management.
The latest court ruling means that Kyivstarâ€™s nine-member Supervisory Council, in which Telenor controlled five seats and Alfa four seats, is illegitimate and must be dissolved. However, Telenor will continue to run the Ukrainian cell phone operator as it controls the management of Kyivstar.
Telenor said it was disappointed with the court ruling, but indicated it will continue to run Kyivstar until the next shareholder meeting approves a new Supervisory Council.
The Norwegian company also said it will seek to keep control of the company after appointing a new nine-member council in which it will again seek to control five seats.
â€śWe own 56.5% of shares,â€ť Thor Halvorsen, executive vice-president at Telenor, told a press conference after the court ruling had been announced. â€śWe consolidated [Kyivstar] and I see no reason why shouldnâ€™t we do it now.â€ť (tl/ez)