By Alastair Sharp
CAIRO (Reuters) - Algerian government opposition to Orascom Telecom's planned sale of its Djezzy unit to South Africa's MTN threatens a larger deal worth up to $9 billion and, may scare off other international suitors for the prized asset.
But MTN's chief executive's desire to seal one last deal before quitting, and Orascom's frustrations with Algiers may push both parties towards a solution, even if it takes time.
A full MTN purchase of Orascom would create the world's third-largest mobile operator, based on MTN's latest numbers released on Thursday, though some of Orascom's assets are unlikely to be transferred.
Algeria has said it opposes the Orascom sale to MTN and insists it has first right of refusal in any sale -- a move that might lead to the nationalisation of Djezzy by default.
"If Algeria does act on these threats, it is potentially very serious for OT, leaving it without a commercial buyer for Djezzy, and the only remaining contender an Algerian government-linked entity," said Mike Millar, head of research at Naeem brokerage in Cairo.
But he said Orascom Chairman Naguib Sawiris might still be able to structure a deal, via various holding companies that control the Djezzy unit, to circumvent the Algerian objections.
"I don't think MTN will give up the deal," said Irnest Kaplan, of Johannesburg-based Kaplan Equity Analysts, pointing out that MTN was looking at more than one type of deal and might even be ready to exclude Algeria.
"So, maybe if Algeria gets blocked they might be able to buy some of the assets, which may not be a bad thing after all".
MTN Chief Executive Phuthuma Nhleko has successfully led the South African firm into higher-risk markets such as Nigeria, Iran and Afghanistan. But he has failed to secure two big deals in the last two years, which may encourage him to persist now.
MTN attempted a $24 billion tie-up with India's Bharti Airtel last year, but the deal fell apart due to opposition from South Africa's government. Earlier talks with India's Reliance Communications also collapsed.
HURDLES
Pharos Holding analyst Delilah Heakal said changes to Algeria's foreign investment laws in the past two years might be an obstacle, but were not insurmountable.
"Whatever hurdles are appearing now don't necessarily mean the transaction is over. A deal of this nature typically takes time and can be reshaped as the situation changes," she said.
Since demanding $597 million in back taxes from Djezzy last year, Algiers has repeated that new laws mean it would have the right of first refusal in any sale of the unit, which provided almost 37 percent of the Egyptian firm's revenues in 2009.
It went a step further on Wednesday, saying that any transaction would be null and could lead to Djezzy losing its licence, which was granted in 2001.
Orascom Telecom Executive Chairman Naguib Sawiris, who also heads the firm's privately held parent Weather Investments, has said he wants to meet Algerian officials to discuss concerns.
No stranger to conflict, Sawiris has just emerged from a long legal battle with France Telecom over Mobinil that threatened to oust him from his home soil of Egypt.
While eager to hold onto Mobinil for partly sentimental reasons, he has been ready to sell up in other markets.
Sawiris has pulled Orascom out of dangerous or unprofitable activities in Iraq, Syria, Yemen, Jordan, Ivory Coast, the Democratic Republic of Congo and elsewhere.
In November, he said he might consider a full merger, following that up this year with the statement: "I believe that in the coming years the telecom market is going to witness massive consolidation, and with the help of our new structure I will be able to devote more time and effort in this direction."
European firms France Telecom and Vodafone could expand their African imprint by scooping up Orascom assets, but each has shied away from grand plans.
Some regional players may also step in, such as Abu Dhabi-based Etisalat, which has said it is eyeing Algeria, which is on good terms with the UAE.
Kuwait's Zain, flush from a $9 billion sale of its African assets to Bharti Airtel, may nose around, but says it wants to focus on the Middle East for now.
Reuters Africa
