Veon on cusp of Russia exit as MegaFon gets litigious

Netherlands-based Veon has taken another step closer to bidding ‘do svidaniya’ to Russia.

The telco group on Tuesday announced that it has submitted all necessary paperwork to Euroclear and Clearstream – two European securities transaction settlement firms – pertaining to the cancellation of Veon’s Eurobonds held by its Russian unit, PJSC VimpelCom.

Cancelling these bonds means Veon has cleared another hurdle on its way out of Russia. That’s been the plan since early November last year, when it announced that VimpelCom was up for sale. Later that same month, it agreed to a management buyout of VimpelCom that valued the business at almost $6.1 billion. Veon received Russian regulatory approval in February, setting a 1 June deadline for completing its exit.

Veon’s Eurobond holders in Russia have been cut off since the EU sanctioned Russia’s National Settlement Depository (NSD). NSD replaced Citibank as the country’s Eurobonds settlement services provider after the latter accelerated its exit from Russia following the invasion of Ukraine.

Veon disclosed in an SEC filing in May that VimpelCom had bought back $1.6 billion worth of Eurobonds, which were subsequently reclassified as inter-company debt.

“The cancellation of Veon’s Eurobonds will pave the way for Veon to exit Russia in a way that we believe to be the optimal outcome for all our stakeholders – including our investors, creditors, customers and employees,” said Veon CEO Kaan Terzioğlu, in a statement. “This cancellation is a non-cash transaction necessary for our timely exit from Russia; and protects Veon and its investors from a risk of double payments in the future. We look forward to the completion of this cancellation, a milestone in the closing of the sale of Veon’s Russia operations.”

Once the transaction completes, Veon will be a much smaller fish, financially speaking.

As disclosed in its Q1 results, VimpelCom turned over RUB70.27 billion ($867.8 million) in the three months to 31 March. The rest of the Veon group, which is comprised of a further seven markets – including Ukraine – generated revenue of $884 million. It’s a similar picture when it comes to EBITDA. VimpelCom earned $375.8 million, compared to $385 million at the rest of the group.

Meanwhile, as Veon navigates sanctions on its way out of Russia, one of VimpelCom’s rivals is railing against them.

It emerged this week that MegaFon has sued the European Council over sanctions imposed on it in February. The sanctions brought the EU into line with the US, which imposed export controls on MegaFon designed to block the supply of equipment that could be repurposed for use by the Russian military.

MegaFon told Russian news agency TASS at the time that it was exploring opportunities to challenge the EU’s decision.

In Tuesday’s edition of the Official Journal of the European Union, the EU revealed that MegaFon filed a lawsuit against the European Council in April, in an effort to lift the sanctions.

The suit alleges MegaFon was not informed by the Council in advance of its decision to sanction the telco, and didn’t give it a chance to provide any observations on the matter.

MegaFon also accused the Council of not stating its reasons for sanctioning MegaFon in the first place, and that they were the result of “an error in assessment.”

MegaFon also claims that they infringe “the principle of proportionality.” Given the Russian military is busy obliterating entire Ukrainian cities, and sending drones to attack civilians in Kyiv, MegaFon should perhaps be more judicious with its use of the word “proportionality”.

The operator played down the significance of the sanctions when they were originally imposed, telling TASS that business would carry on as usual. However, the fact that it has called in the lawyers suggests that it is feeling the effects more acutely than it is letting on.

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