Algerian government holds talks with Djezzy on future of Orascom unit

Algeria’s government has held its first talks with the head of Djezzy, the local subsidiary of Orascom Telecom and the most attractive asset that the Egyptian company owns.
Both the finance and communications ministers in Algeria have said that the state…

Algeria’s government has held its first talks with the head of Djezzy, the local subsidiary of Orascom Telecom and the most attractive asset that the Egyptian company owns.

Both the finance and communications ministers in Algeria have said that the state will use the country’s law to stop Orascom selling Djezzy to South Africa’s MTN as the centrepiece of a larger deal worth up to US$9bn.

The Algerian state expects to hold direct talks with Naguib Sawiris, Orascom’s executive chairman, in the near future, said Hamid Bessalah, the Algerian communications minister at a press conference in Algiers on May 10.

Sawiris asked Egypt’s foreign minister to help him arrange a meeting with Ahmed Ouyahia, Algeria’s prime minister, when the Algerians first announced that they would block any change in the ownership of Djezzy on April 28. However, Bessalah is the first senior Algerian to confirm that he will meet with senior managers from Orascom’s Egyptian headquarters.

“We have started talks with Orascom Telecom Algérie [the full name for Djezzy]. Talks with high-level officials will take place in the next step,” Bessalah told the press conference.

On May 6, Karim Djoudi, the country’s finance minister, said that the Algeria’s government wants to buy 100% of Orascom Telecom Algérie.

“The transaction must conform to national laws. Algeria is ready to buy 100% of the operator,” said Djoudi in a statement on the state-run Algérie Presse Service newswire.

The government may use one of its state-owned enterprises to fund the deal.

If Algeria uses its legal right to buy any asset that foreign investors put up for sale, its action would almost certainly force Orascom to call off the sale of all or part of the company to MTN.

Algeria generates greater revenues for Orascom than its other operations in Egypt, Tunisia, Bangladesh, Pakistan, North Korea, Burundi, Central African Republic, Namibia or Zimbabwe.

Djezzy’s pre-tax profit margins are also higher than those of Orascom’s other businesses. In 2009, Djezzy generated 49% of group EBITDA.

However, Djezzy has drained Orascom’s coffers this year after the Algerian tax authorities forced the operator to pay US$597m in back taxes. Orascom has taken its appeal against the tax bill through the country’s judicial system, but it has lost every single time. It has only one appeal left open to it.

The Tunisian government has yet to give its opinion on Orascom’s deal with MTN.

On 29 April, however, a spokesman for Orascom’s local subsidiary Tunisiana told Bloomberg that the Tunisian authorities would probably approve the deal.

Orascom shares the ownership of Tunisiana with Qatar’s Qtel. Both companies own 50% stakes and have the same level of management control.