Telenor Wins New York Arbitration against Alfa - Alfa Ordered to Sell Kyivstar Shares or Divest Itself of Competing Assets

The three-member arbitration tribunal today issued an arbitration award which held that Alfa subsidiary Storm has breached and continues to breach the Kyivstar Shareholders Agreement by:
  • failing to appoint candidates for election to the Kyivstar Board and failing to cause Storm-nominated Board members to attend Board meetings;
  • failing to attend Kyivstar shareholders meetings;
  • owning or controlling, directly or indirectly through affiliates, more than 5% of the shares of Turkcell and Ukrainian High Technologies, which are competing wireless telecom operators in Ukraine; and
  • by failing to settle any and all disputes relating to the Kyivstar Shareholders Agreement by arbitration.
The tribunal's award orders Alfa subsidiary Storm to (a) organize its Kyivstar shareholding so that it can nominate four candidates for election to the Kyivstar Board, (b) take all steps necessary to elect its candidates to the Kyivstar Board and ensure they attend all future Kyivstar Board meetings and participate in good faith in the direction and management of Kyivstar's business, (c) attend all Kyivstar shareholders meetings, (d) take steps to cause Kyivstar's charter to be amended to conform to applicable Ukrainian law and the Kyivstar Shareholders Agreement, and (e) within 120 days, sell its Kyivstar shares to a person other than a Storm affiliate unless prior to that time Storm and its affiliates divest their shareholdings in Turkcell and Ukrainian High Technologies that exceed 5%.
In addition, the tribunal has enjoined Storm and anyone acting in concert with it from (i) pursuing any litigation in Ukraine relating in any way to the Kyivstar Shareholders Agreement, including any existing litigation, (ii) attempting to enforce certain Ukrainian court orders and (iii) taking any action to prevent Telenor and Ernst & Young from exercising their rights under the Kyivstar Shareholders Agreement or other agreements with Kyivstar
Telenor commenced the arbitration proceeding, which is governed by the UNCITRAL (United Nations Commission on International Trade Law) arbitration rules, in February 2006.  Both Telenor and Alfa had agreed in the Kyivstar Shareholders Agreement to resolve any disputes in such an arbitration proceeding.
"We are delighted with this outcome," said Telenor Executive Vice President and Head of Central and Eastern Europe, Jan Edvard Thygesen. "Alfa began violating the Kyivstar Shareholders Agreement just over one year after signing it. Our sole objective in bringing this proceeding has been to defend our investment in Kyivstar and our rights under the Shareholders Agreement, force Alfa to comply with the agreement it signed.  We are particularly pleased that the tribunal has ordered Alfa to divest itself of its interests in competing Ukrainian mobile operators or sell its shares in Kyivstar within 120 days, and has ordered Alfa to stop interfering with Kyivstar's ability to have its financial statements audited by Ernst & Young.  The tribunal's award marks the beginning of the restoration of corporate governance in Kyivstar."
Telenor also announced it has applied to the United States District Court for the Southern District of New York to confirm the arbitration award so that Telenor can begin to enforce it against Alfa.  "We will seek to enforce this award wherever Alfa has assets, including in Ukraine," said Thygesen. "We are confident Ukraine will comply with its international treaty obligations and its own laws concerning enforcement of such arbitration awards."
Telenor is the majority owner of Kyivstar, holding 56.5% of the shares, while Storm holds a 43.5% interest.
Further information:
Dag Melgaard, Vice President Corporate Communications, Telenor ASA
tel:  +47 901 92 000
Anna Ivanova-Galitsina, PR and Communications Director, Telenor Russia AS 
tel: +7903 680 0033
Anastasiya Sosevych, PR and Communications Director, Telenor Ukraine
tel:  + 380674676666