Egypt’s Orascom Telecom faces new $230 million tax bill from Algeria operationsBy Tarek El-tablawy, AP
Thursday, September 30, 2010
Egypt’s Orascom faces new Algeria tax bill
CAIRO — Egyptian telecom giant Orascom Telecom said Thursday its Algeria unit has been hit with a $230 million preliminary tax reassessment, marking a new and increasingly acrimonious chapter in the company’s relations with the North African nation.
OT said in a statement that it would take all “necessary legal steps” to challenge the new tax bill, which came even after the company had already had its accounts audited by its local auditor and had paid the taxes due for 2008 and 2009, the years in question.
Orascom “fully objects to the reconstitution of its audited accounts,” the company said. It also criticized the methodology used to re-evaluate its books, calling it “completely arbitrary and groundless especially given that OTA’s accounts were fully audited and approved by both OTA’s international auditors (KPMG), and its local statutory auditors.”
The news sent OT’s shares spiraling down more than 3.4 percent to 5.04 Egyptian pounds in early trading on Cairo’s stock market.
OT, Egypt’s largest mobile phone service provider by subscribers, operates in Algeria through its Djezzy subsidiary. The company unsuccessfully challenged a $600 million back-tax bill levied last year by Algeria for 2004-2007 — a feud many believe was sparked by a World Cup qualifier match between Egypt and Algeria that turned violent.
In filing appeals against the back taxes assessed when the company was supposed to be enjoying a tax holiday in the country, OT was forced to incrementally pay hundreds of millions of dollars which it could recoup if it prevailed. It did not.
The feud was further complicated by OT’s proposed sale of many or all of its non-Egyptian assets to South Africa’s MTN Group. Djezzy was seen as the prize in the deal and OT’s willingness to sell off such a key asset was seen as a reflection of the company’s apparent frustration with the status of negotiations over the back-tax issue.
But Algeria blocked the deal, saying it wanted to buy Djezzy.
Analysts saw the latest move as an attempt by Algeria to create further complications for Orascom. The reassessment would make it difficult for the company to repatriate dividends or transfer any funds outside of Algeria, Mideast investment bank Beltone Financial said in a report Thursday.
“The fact that the Algerian government is still continuing to place further pressure on Djezzy endorses our ’sell’ recommendation, due to expectations of a disappointing offer to be made by the Algerian government in return for Djezzy,” Beltone telecom analyst Sally Gerges said.
Gerges said the move reflects “an additional attempt by the government to pull down the valuation of the Algerian unit, which should be decided by a local Algerian financial adviser during the next few months.”
Orascom said the latest reassessment was “based primarily on the unfounded allegation that (it) did not keep proper accounts for the years 2008 and 2009.” The company also said the Algerian challenge comes despite the fact that OT has already paid the taxes due for the two years in question.
OT said it had 40 days to respond to the preliminary notification by Algerian tax authorities before receiving the final reassessment.
Aside from Egypt and Algeria, OT also operates GMS networks in Tunisia, North Korea, Canada, Pakistan, Bangladesh, the Central African Republic, Zimbabwe, Burundi and Namibia.
Tags: Africa, Algeria, Cairo, Egypt, Middle East, North Africa, Southern Africa