Veon closed the deal to sell VimpelCom to management
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As Kommersant expected, Veon announced a deal to sell VimpelCom. The company’s top management, led by General Director Alexander Torbakhov, received 100% of it. At the same time, VimpelCom exchanges Veon Eurobonds, recorded in the National Settlement Depository, with its own replacement securities. The company expects that the increase in debt load in relation to EBITDA will not exceed 2.9 and will not affect capital expenditures. But analysts believe that rising debt will limit investment in expanding network capacity anyway.
Veon Holding announced about the exit from Russia with the “closing of a transaction for the sale of Russian enterprises to a group of high-ranking members of the management team of PJSC VimpelCom, led by the company’s CEO Alexander Torbakhov.” Deal like Kommersant assumed on October 6does not provide for buyback agreements and “means Veon’s complete withdrawal from the Russian market.”
The message from VimpelCom clarifies that as part of the transaction, the company acquired over 96% of all bonds of the Veon group in the Russian Federation (including more than 99.6% of securities accounted for in the National Settlement Depository). Additional external financing was not attracted, clarifies a source familiar with the details of the transaction.
As Kommersant’s sources explained, VimpelCom was valued at 370 billion rubles during the transaction, the company’s net debt is 240 billion rubles, and the equity value was 130 billion rubles.
VimpelCom is purchasing Veon Eurobonds for a comparable amount and issuing its own replacement securities with a longer maturity in favor of their holders. “The repurchase was carried out on uniform and economically equal terms for each bond issue,” VimpelCom added.
Veon’s financial advisor on the transaction was the investment bank Aspring Capital. Veon’s legal advisor was ALRUD, the buyers were LEVEL Legal Services. ALOR Broker (ALOR+ LLC) acted as a financial consultant and broker in the process of repurchasing Eurobonds.
Kommersant’s sources claimed that the debt to EBITDA ratio following the transaction will be 3.5. But VimpelCom says that based on the results of the third quarter it will not exceed 2.9, and after “the complete closure of the transaction” – 2.6, which “reflects a comfortable level of debt burden for the company, allowing it to continue the successful implementation of the capital investment program.”
Increasing the debt burden in any case will limit the room for maneuver in terms of investment in expanding network capacity, which could negatively affect plans to restore market share, says Konstantin Belov, senior analyst at the Sinara investment bank: “At the same time, it is unlikely that the company will begin paying dividends in the short term, which will partially offset this effect.” In general, the level of debt burden does not look critical, and servicing difficulties should not arise, the expert adds.
VimpelCom clarified that the issue of paying dividends will be “considered by the company’s new shareholders in the future, depending on the achievement of financial and operational indicators.”
The prospects for the resale of VimpelCom to a specialized investor still look doubtful to analysts. “The problem is that all the largest players in the telecom market of this scale already own one of the Big Four,” explains Mr. Belov. “Accordingly, the deal would be strategically justified only at a very low valuation, and would also require the approval of the antimonopoly authorities ” However, he admits that the new owners will try to sell the company or a stake in it to a strategic investor “from other industries.” VimpelCom assured that there are currently no plans to sell the company.
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