Turkish conglomerate Cukurova Group has overcome another hurdle in the road to recovering a 13.8% stake in Turkcell, securing victory in a US court.
The US Circuit of Appeals Court in New York overturned the decision of a lower court last year which…
Turkish conglomerate Cukurova Group has overcome another hurdle in the road to recovering a 13.8% stake in Turkcell, securing victory in a US court.
The US Circuit of Appeals Court in New York overturned the decision of a lower court last year which froze Cukurova’s assets until it paid a US$932m arbitration award to Swedish telco TeliaSonera, another Turkcell shareholder.
The appeals court decided the New York district court did not have personal jurisdiction over the case as “Cukurova lacks sufficient contacts with New York to render it “at home”. The court noted that Istanbul-based Cukurova is organised under the laws of Turkey and has most of its operations and assets there.
The decision paves the way for Cukurova, controlled by Turkish businessman Mehmet Emin Karamehmet, to recover a controlling stake in Turkcell, kick-starting a 60-day deadline for it to pay the US$1.6bn needed to recover a 13.8% stake from co-investor Altimo.
The dispute that led to the New York court cases dates back to 2005, when Cukurova negotiated the sale of shares in Turkcell to a Dutch unit of TeliaSonera and then did not deliver them. A Geneva arbitrational tribunal decided the parties had concluded a share purchase agreement and ordered Cukurova to pay the Dutch unit, Sonera, US$932m in damages. Sonera then filed applications to enforce the judgement in several jurisdictions, including New York, the British Virgin Islands, Switzerland and the Netherlands.
The New York decision enables the UK’s Privy Council to resolve a case involving Cukurova, which is registered in the British Virgin Islands, and Russian telecoms investment firm Altimo. In July 2013, the court decided Cukurova was entitled to recover a 13.8% stake in Turkcell seized by Altimo when the Turkish group defaulted on a loan, if it paid US$1.5bn plus interest. This February, the court decided to suspend the payment deadline until after the New York appeals court made its decision. The court said it would give Cukurova 60 days after the New York court’s decision to make the payment to Altimo, part of oligarch Mikhail Fridman’s Alfa Group.
Commenting on the New York decision, a TeliaSonera spokesperson said it will hopefully help to resolve the corporate governance deadlock at Turkcell.
“Our top priority is to get ordinary corporate governance in place at Turkcell. Among other things, this means representation on the board for the shareholders, the holding of an AGM and a decision on distribution of dividends.”
Alper Ozdemir, an analyst with Oyak Yatirim Research in Turkey, said the New York decision marks an important milestone in the long-running dispute between Turkcell’s three major shareholders. His team now expects Cukurova to pay the money needed to recover the 13.8% stake.
“Although we believe it will take some time, this decision might lead to prospective distribution of accumulated dividends in the last four years, which will partly compensate the necessary funding for Cukurova.”
The ongoing dispute between Turkcell’s three major shareholders has prevented the mobile operator from convening an AGM and paying dividends since 2010. The 2014 AGM is set for 29 May.
Ozdemir is not confident the shareholders will cooperate better going forward, noting that TeliaSonera will continue to pursue the US$932m arbitration award in other jurisdictions.
“In this context, the [TeliaSonera-Altimo alliance] might continue to block the board functionality. In return, we might see counter moves from [Turkish capital markets board] CMB, which currently has five out of seven members on the board.”
The CMB appointed the directors as the feuding shareholders were unable to agree on their own.
