Global Insight Perspective | |
Significance | The U.S. court has ruled in favour of Telenor, which will give the Norwegian group's case further weight. |
Implications | However, it appears highly unlikely that Alfa will comply with the order, which it says contradicts court orders made in Ukraine. |
Outlook | Telenor is now waiting on a court decision in Russia. |
The U.S. District Court in the Southern District of New York has found units of Alfa Group in contempt of court in a dispute with Telenor over the management of Ukrainian mobile operator Kyivstar. In a ruling issued on Wednesday (19 November), the court accused Alfa of "vexatious and collusive litigation" in Ukraine with the aim of blocking management decisions and implementing the shareholder agreement.
The U.S. court also called for Altimo, the telecoms arm of Alfa, to comply with a court-backed arbitration scheme. This requires Altimo to abide by the shareholder agreement, stop blocking management decisions and sell stakes in competing companies. The court order also proposes fines of US$100,000 per day, to double every 30 days until Altimo complies with the ruling.
Altimo's senior vice-president, Kirill Babaev, described the contempt of court charge as '"unfair", according to Reuters. He suggested that Altimo had sought to comply with previous orders from the New York court, but had been stymied by contradictory court orders in Ukraine. Babaev referred to a specific court order in Ukraine that banned Altimo from disposing of its stake in Kyivstar and thus "we physically could not and had no right to attend Kyivstar meetings". The court referred to such rulings in Ukraine as "nothing more than a sham, a pseudo-legal excuse for (Altimo and its related companies) to refuse to do what they have all along refused to do".
Outlook and Implications
- Justification for Telenor: The ruling will give further weight to Telenor's cause, but given past experience it is highly unlikely that Altimo will comply with the U.S. court. Storm, which represents Altimo's 43.5% stake in Kyivstar, has continued to boycott Kyivstar shareholder meetings (see Ukraine: 18 March 2008: Altimo Unit Boycotts Kyivstar Shareholder Meeting). For a time Telenor deconsolidated its 56.2% stake in Kyivstar from its accounts.
- Dispute Continues in Russia: Alfa denies that it is behind legal proceedings against Telenor in Russia (see Russia – CIS: 19 November 2008: Omsk Court Postpones Hearing of Telenor Appeal to 12 December). The proceedings have been brought about by an offshore company, Farimex, which accuses Telenor of causing it financial damage through delaying VimpelCom's acquisition of Ukrainian RadioSystems. Telenor is appealing a potential US$2.8-billion fine and the freezing of its stake in VimpelCom.