Orascom mobile empire starts to dismantle

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Orascom mobile empire starts to dismantle

VimpelCom could take controlling stake, Wind Hellas seeks buyer

By CAROLINE GABRIEL

Published: 24 August, 2010

Orascom and its controller Naguib Sawiris once looked set to be multinational wireless powerhouses, creating a string of cellular and WiMAX operators around the Mediterranean and parts of Africa. But now the group is dismantling itself amid mounting debt and global recession, and it recently reported quarterly losses on a drop in revenue.

Although the Egypt-based group is likely to remain important in its north African heartland - it is said to be interested in a stake in Morocco's Meditel, for instance - it was negotiating with South African telco MTN earlier this year to sell many African assets. MTN walked away when the companies failed to agree on price, but many of those units could come up for sale again.

Meanwhile, Russia's VimpelCom is said to be targeting Orascom's Wind Italy subsidiary, and even possibly a majority stake in the whole Orascom group, while sister company Wind Hellas is also seeking a buyer. Both Wind units are controlled by Sawiris' holding company Weather Investments, the major stakeholder in Orascom.

Talks with VimpelCom are ongoing, according to Bloomberg. The Russian firm controls the cellco of the same name, Russia's third largest, and Ukraine's biggest mobile carrier, Kyivstar, and is looking for further expansion in many regions of Europe and central Asia. It could just pick up Wind Italy, but some sources say its real interest is in a 51% stake in Orascom, which would create a combined player worth $25bn. It would have a high level of debt, at about 2.5 times EBITDA (compared to 1.5 times for the newly restructured VimpelCom). In Q2, Wind Italy had net debt of €8.29bn, while Orascom had debt of $4.61bn - the key reason why Sawiris is looking for a partner.

It is thought that, if a deal is struck, it could see Orascom with a stake of about 22% in the combined group, diluting VimpelCom's existing major shareholders - Russia's Alfa Group and Norway's Telenor.

Over in Greece, Wind Hellas has been hit hard by the Greek financial crisis and is now facing imminent bankruptcy. It reported a 27% year-on-year revenue drop to €202.3m for its second quarter, and a 52$ fall in EBITDA to €39.1m. The cellco has now negotiated a 'standstill agreement' with creditors that will allow it to suspend repayments until November to give it time to find a purchaser. Offers are invited until September 15 and after that one preferred buyer will be chosen to "implement a restructuring or sale transaction". The most likely outcome is a takeover by hedge funds via a debt-for-equity swap.

Wind has not just been a victim of the Greek financial meltdown but also rising competition, especially as it had large debts and dwindling cash. This forced it to close some stores and it had less resource for handset subsidies, making it focus heavily on SIM-only offers. Its mobile base dropped from 5.2m a year ago to 4.2m in the second quarter, and net adds fell 13% compared to the first quarter.