Political Risks Will Pressure VimpelCom In 2014
VimpelCom is under investigation from the US Securities and Exchange Commission (SEC) concerning its telecoms operations in Uzbekistan. The operator confirmed that its commercial headquarters in Amsterdam were visited by representatives of the Dutch authorities, who obtained documents and informed the company that it was the focus of a criminal investigation in the Netherlands. VimpelCom has experienced a difficult few months since October 2013 and we believe it may have further to fall in the short-term.
VimpelCom is a Russian company but has its headquarters in Amsterdam and is listed on the US NASDAQ stock exchange. Russia, Ukraine and the Commonwealth of Independent States account for a large proportion of its 220mn customers, but the company has a truly global presence with other operations Asia, Africa, the Middle East, Italy and Canada. Its share price has taken a hit in 2014 following the widespread market sell-off in Russia as investors exited positions to lower their exposure to the Crimean crisis. The company incurred a net loss of US$2.66bn in Q413, after writing down its Ukraine assets by US$2.1bn to reflect the higher political risks and reduction in Ukraine's credit rating. VimpelCom's operations in Russia and the Ukraine accounted for 39.3% and 7% respectively, of revenues in 2013 and it is therefore one of the companies most at risk from further flare-ups in tensions.
The situation for the rest of its operations is also unenviable, evidenced by the SEC's investigation of its Uzbekistan business. The reason behind the investigation of VimpelCom in Uzbekistan has not been revealed by the company or the SEC, however, BMI has previously highlighted the risks of doing business in Uzbekistan (see 'Industry Risks Outweigh Potential Rewards', June 11 2013). VimpelCom's domestic and regional rival MTS had its licence suspended by the Uzbek government in 2012 amid claims of bribery and corruption, and was subsequently removed from the market. VimpelCom has benefited from the exit of MTS but the government now plans to use the MTS assets to launch a new GSM network for state-owned Uzmobile. Given the criminal charges laid before MTS, it is possible that similar investigations regarding licence payments may be brought against VimpelCom.
|VimpelCom Heading Further Down|
|VimpelCom Share Price, (US$)|