Orascom's lost appeal may lead to fire sale

The Algerian government yesterday denied an appeal by Egypt's Orascom Telecom over several tax rulings, continuing the political football match being waged by the two sides. By many accounts the financial rivalry dates back to last November, when Egypt defeated Algeria in a World Cup qualifier. Shortly afterwards, the Algerian government billed Orascom US$597 million in taxes that it said the company owed between 2004 and 2007. The demand for payment appears to violate the agreement that allowed the Egyptian company to enter the Algerian market in 2001 with a five-year tax exemption. At stake now is the possible sale of the top telecoms operator in Algeria at a distressed price, said Simon Simonian, a telecommunications analyst at Shuaa Capital. Djezzy, Orascom's Algerian subsidiary, has 62.9 per cent of market share, with more than 14.7 million subscribers as of last September.

The company's shares closed down 1.93 per cent at 6.09 Egyptian pounds yesterday. Since the dispute began, the price has dropped by 12.5 per cent. The Algerian government forced Orascom Telecom to pay $120m as an appeal fee in December, and the telecoms company will have to pay an additional 20 per cent of the original $597m to appeal the first rejection by the Algerian authorities. This would have been very difficult had the company not raised $790m in a rights issue last week.

"Maybe the balance sheet and cash flow would have pressured them to a quick resolution," Mr Simonian said. "Now, with the rights issue, there's no rush. Both are related - the tax dispute and Orascom exiting Algeria. These two issues have to be resolved. And if the government wants Orascom to sell Djezzy to an Algerian investor or a local company, it has to be at a sale price," meaning it should be at a fair book value.

The tenuous relationship with the Algerian government has further pressed Orascom to offload Djezzy, an action that would probably harm Orascom's bottom line. Mr Simonian said the Algerian government would probably decide who bought Djezzy, if it came to that. @Email:halsayegh@thenational.ae

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