M. Stulov / Vedomosti

Paying off part of the debt with funds received from Altimo would be the most correct decision for Vimpelcom , says Otkritie Capital analyst Alexander Vengranovich. In his opinion, there is no point in spending these funds on buy-back: the number of shares in free circulation is already small. And declaring special dividends is unfair, because the main part of them will be received by Altimo, which will simply get back half of the funds spent on buying out ordinary shares, Vengranovich argues.

Vimpelcom Ltd. reported that it received $1.4 billion from its shareholder Altimo (which manages the telecommunications assets of Alfa Group) in exchange for the conversion of preferred shares into common shares. Altimo notified the company of its desire to make such an exchange on December 21, 2012. The charter of Vimpelcom Ltd. allows the owners of preferred shares to exchange them for common shares by buying back from the holding the same number of these shares as the preferred shares are cancelled, at the current market price. On the day when Altimo reported the upcoming conversion, a common share of Vimpelcom Ltd. cost $10.835. Today, by 19:20 Moscow time, the quote was $12.13 - it turns out that by buying back 128,532,000 common shares from Vimpelcom, Altimo saved approximately $159 million.

VimpelCom's preferred shares (later converted into VimpelCom prefs) were bought out by Alfa back in 2001 from the founder of this mobile operator, Dmitry Zimin. The only value of this class of securities is that they give the right to vote at a shareholders' meeting. At the same time, unlike ordinary shares, they are not traded on the stock exchange and dividends are not paid on them. By exchanging these securities for ordinary shares, Altimo retained its previous stake in VimpelCom Ltd. in terms of the number of votes (47.85%), but increased its economic participation from 52.7% to 56.2%.

Vimpelcom's dividend policy for 2011-2013 calls for paying shareholders at least $0.8 per share. That is, Altimo can count on an additional $102.8 million per year.

The issue of how to dispose of the $1.4 billion received from Altimo will be decided by the Vimpelcom supervisory board, says the holding's representative Bobby Leach. So far, according to him, there is no decision. Earlier, a source close to Vimpelcom did not rule out that at least part of these funds could be used for early debt repayment. As of the end of December 2012, Vimpelcom's debt amounted to $26.99 billion (2.2 EBITDA for 2012); this year the holding will have to repay $2.6 billion, in 2014 - $1.8 billion, and the peak of payments is in 2017-2018 - $8.9 billion and $6 billion, respectively.

There is nothing unfair in paying special dividends, argues senior analyst at BCS Anna Kurbatova: minority shareholders will receive part of these funds, which will partially compensate for the dilution of their share in Vimpelcom's dividend payments. According to Kurbatova, the optimal solution for the holding would be to direct part of the amount received from Altimo to dividends, part to debt repayment, and part to capital investments.

Altimo (whose representatives hold three of the nine seats on Vimpelcom Ltd.'s supervisory board) has not yet decided on what the holding company should spend $1.4 billion on, says its vice president, Yevgeny Dumalkin. A representative of Vimpelcom Ltd.'s second-largest shareholder, Norway's Telenor, declined to discuss the matter.

In October 2013, Telenor, which has even more preferred shares than Altimo had – 305 million – will also receive the right to convert preferred shares into ordinary shares of Vimpelcom. The buyback of a similar number of ordinary shares at yesterday’s quotes would cost the Norwegians $3.7 billion. Whether Telenor will use this opportunity has not yet been decided, says its representative.

Altimo to receive more dividends from Vimpelcom Ltd.