BVI Offshore Business: Grey Area

About a week ago, the Norwegian telecommunications operator Telenor, which is in long-lasting litigation with the British Virgin Islands-registered Farimex, announced that it faced a challenge from it over its holdings in Russian mobile operator Vimpelcom, having initiated investigation by Ukraine’s Anti-Monopoly Committee into its operations. Farimex claim to the Ukrainian anti-monopoly authority is based on its opinion that Telenor hindered competition in Ukraine by delaying Vimpelcom’s acquisition of Ukrainian Radio Systems (URS).

This allegation was already the reason of Farimex’s $1.7 billion suit against Telenor in the Siberian court. The decision of the court in favor of the BVI corporation currently is under appeal by Telenor. Ukrainian Radio Systems was acquired by VimpelCom in 2005 at a price of US$231 mln, after it was offered in 2005 at a price of US$100 million to Golden Telecom. Telenor-appointed members of the Board of Directors of VimpelCom argued against the acquisition for three reasons - two high price, unidentified sellers and non-credible business plans presented for URS development.

Telenor owns 56 per cent of Ukrainian mobile market leader Kyivstar, and the rest is owned by Russia’s Alfa Group. BVI-registered Farimex holds a  0.002 per cent stake in New York-listed Vimpelcom whose two main shareholders are Telenor and Alfa Group. Telenor claims Farimex is linked to Alfa Group - but this is rejected by Alfa itself.

Now, according to Telenor, Farimex said that Telenor, Kyivstar and Alfa company Storm have broken the Ukrainian competition rules because of a non-participation clause in the Kyivstar shareholders’ agreement, which bans shareholders from owning more than 5 per cent stakes in Kyivstar rivals without each others approval. Country Manager of Telenor Group Ukraine said that inclusion of non-participation clauses was standard practice. He said that non-participation clauses are normally included in agreements between partners worldwide, so too between the Kyivstar shareholders in the agreement signed in 2004. This was done to promote fair competition and avoid monopolization of the market.