Identifier
Created
Classification
Origin
06BELGRADE1258
2006-08-09 11:08:00
UNCLASSIFIED
Embassy Belgrade
Cable title:  

MOBI 63 SOLD FOR EUR 1.513 BILLION

Tags:  ECON ECPS EFIN PGOV BTIO KPRV SR 
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VZCZCXYZ0009
RR RUEHWEB

DE RUEHBW #1258/01 2211108
ZNR UUUUU ZZH
R 091108Z AUG 06
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 9121
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS BELGRADE 001258 

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ECPS EFIN PGOV BTIO KPRV SR
SUBJECT: MOBI 63 SOLD FOR EUR 1.513 BILLION

REF: A) Belgrade 673, B) Belgrade 447, C) 05 Belgrade 582

SUMMARY
-------
UNCLAS BELGRADE 001258

SIPDIS

SIPDIS

E.O. 12958: N/A
TAGS: ECON ECPS EFIN PGOV BTIO KPRV SR
SUBJECT: MOBI 63 SOLD FOR EUR 1.513 BILLION

REF: A) Belgrade 673, B) Belgrade 447, C) 05 Belgrade 582

SUMMARY
--------------

1. On August 1, the largest Norwegian mobile operator
Telenor signed the sales agreement with the Government of
Serbia (GOS) to buy Serbian mobile operator Mobi 63 (former
Mobtel) for EUR 1.513 billion. Telenor won the televised
auction organized the day before, competing with Austrian
Mobilkom and Egyptian Orascom Telecom. The achieved price at
the auction is a record in the current privatization process
in Serbia, and this single transaction equals the total
foreign direct investment (FDI) in Serbia and Montenegro for

2005. The sale brings to an end the saga of former Mobtel's
dispute over ownership structure between the GOS and
Milosevic's tycoon Bogoljub Karic as former owner, while
setting the stage for future competition.

TELEVISED AUCTION FOR MOBI 63
--------------

2. On July 31, three companies participated in the
international televised auction: Norwegian Telenor, Austrian
Mobilkom and Egyptian Orascom Telecom. Each company
submitted binding offers on July 26. Bids could not be lower
than EUR 800 million, which included EUR 320 million for the
operating license, and the highest bid was the starting price
of the auction. The announced starting price at the auction
was EUR 1.373 billion. Mobilkom and Telenor accepted the
starting price, but Orascom withdrew from the competition.
After ten rounds of bidding, the final accepted price by both
parties was EUR 1.513 billion. According to the rules of the
auction, binding offers were read and the highest offer won.
Telenor had offered EUR 1.373 billion while Mobilkom offered
EUR 805 million. In spite of expectations that Mobilkom had
been sought as a new owner of Mobi 63, Telenor confidently
led the auction from the beginning, leaving no doubts about
the outcome of the auction.


3. At the press conference after signing the contract with
Telenor, Mladjan Dinkic, Minister of Finance, expressed
delight with the high price and good deal with the
Norwegians. He said that the achieved price for Mobi 63 is

equal to the total value of four months of Serbian exports
and equal to three-month net pay of the entire Serbian
workforce. He expects that this transaction will raise the
amount of FDI in 2006 to a record USD 3.5 billion.

TWO CRUCIAL POINTS IN NEGOTIATION WITH SCHLAFF
-------------- -

4. Dinkic gave a brief history of the dispute between Karic
and the GOS over the ownership rights in Mobtel (reftel B),
Karic's intention to sell the company to various investors
(reftel C),and his eventual sale to the group of Austrian
investors led by Martin Schlaff. He stressed that the GOS's
decision to protect its interests in Mobtel against Karic by
revoking Mobtel's operating license in December 2005 (reftel
A) was a crucial point for starting negotiations with
Schlaff. The GOS then authorized the state-owned postal
company PTT Srbija to take over Mobtel's debts of EUR 92.4
million from Raiffeisen Bank and Hypo-Alpe-Adria Bank and
become the majority creditor of Mobtel, which enabled the
state to become owner of 70 percent of the assets in Mobtel.
At the same time, the GOS made a deal with Schlaff whereby
the Austrians took over Mobtel's debt of EUR 39.6 million
from Swedish Ericsson for the equipment and became owner of
30 percent of the assets. They reached an agreement in April
2006 to create a new company named Mobi 63 in which there was
a 70/30 share between the GOS and the Austrians respectively.
The agreement called for an auction of Mobi 63 which included
equipment owned by Mobi 63, the operating license and the
entire subscription network with the obligation of the future
owner to take all of the 960 employees in Mobtel after the
transaction.


5. Dinkic admitted that the negotiations with Schlaff were
tough. Schlaff wanted a direct deal with the GOS, estimating
that the GOS could get some EUR 200 to 250 million from
Mobtel. On the other hand, the GOS had insisted on
auctioning Mobi 63 from the beginning. In addition, Schlaff
insisted on minority rights based on his 30 percent which was
unacceptable for the GOS. Dinkic said that the GOS's
response to that request was also crucial to the successful
sale. The GOS suggested that if the price was higher than
EUR 1.1 billion, Schlaff would have to sell their share in
Mobi 63. Otherwise, if the price was lower than EUR 1.1
billion, they could decide whether or not to sell their share
to the new owner with the obligation to pay the new owner EUR
96 million for 30 percent of the license and if they decided
not to sell their share. Dinkic thinks that this move
contributed to a higher price for Mobi 63 since the owner had
to offer more than EUR 1.1 billion to become 100 percent
owner of the company.

HOW TO SPEND MORE THAN A BILLION EUROS
--------------

6. Dinkic expects thatthe total price will be paid by the
end of Augus. He said that the GOS would get EUR 1.1551
bilion from thi transaction plus EUR 30 million from
Mobtel's operational revenues since December 2005 From this
EUR 1.1851 billion, the city ofBelgrade will receive some
EUR 3.6 million in tax revenues, and PTT Srbija will receive
some EUR 100 million to pay back their debts to banks. The
privatization advisor, Consortium Rothschild, will receive
0.293 percent or EUR 4.434 million from the sales price. The
Austrian investors will receive EUR 357.9 million which could
potentially be much more than they originally invested in
Mobtel. Dinkic said that all of the GOS's proceeds would be
spent on investments.

POSSIBILITY FOR A THIRD LICENSE
--------------

7. Shortly after the auction, Austrian Mobilkom announced
its plans to apply for a third mobile telephony license on
the Serbian market. When asked at the press conference if
this was possible, Dinkic said that a third operator would be
welcomed, citing the benefits to the GOS and customers from
increased competition. The starting price for the third
license will not be less than EUR 320 million for two and a
half years and is part of the deal with the new owner to
allow for time to consolidate the company.


8. Upon receiving documentation from a potential investor,
the Regulatory Agency for Telecommunications, which is
responsible for issuing licenses, will call an international
tender to collect potential bids with a deadline of no longer
than 45 days, followed by a procedure to choose the best bid
within four months. Dinkic said that the third operator
would only receive the license and would have the costs of
establishing the company and network. Dinkic also mentioned
that the GOS has no intention of selling its stake in the
state-owned mobile and landline operator Telekom Srbija, nor
change its ownership structure before 2010.

TELENOR PLEASED WITH OUTCOME
--------------

9. Jan Edvard Thygesen, Telenor's Director for Central and
Eastern Europe, expressed gratitude to the GOS for the
transparent process and professionally-organized auction. He
said that the price for Mobi 63 was high but reasonable and
supported by the market since the shares of Telenor did not
drop after the purchase. He sees this transaction as an
investment in the future referring to Telenor's intention to
become the leader in the region and serve customers according
to the principle "better value for the money". Telenor
operates in 12 Asian and European countries and is owner of
Promonte mobile operator in Montenegro. They had annual
turnover of EUR 2.5 billion and approximately 100 million
customers worldwide.

EFFECTS OF PRIVATIZATION IMMEDIATELY EVIDENT
--------------

10. In contrast to the bad GOS decision not to sell majority
ownership in the NIS oil refinery (septel),this real
privatization has yielded immediate, positive results for the
government and the economy. Just days after the sale,
Telekom Srbija announced plans to launch 3G mobile technology
in larger Serbian cities late this year as competition
arrives. The technology will offer users new services such
as high-speed internet and video calling. Drasko Petrovic,
General Manager of Telekom Srbija, said that Telekom is ready
for competition and believes the increased competition will
be good for the Serbian telecom market and economy. When
asked about the potential arrival of a third mobile operator,
Petrovic said that it will not pose a threat because there is
"enough room for everybody" in the market.

POLT