Jazz’s Parent Company ‘VEON’ Hints It Will Cease Business Operations

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Veon, the parent company of Pakistan’s top cellular operator with its biggest market in Russia, issued a stark warning to shareholders, saying the war in Ukraine could force them out of business. The company lists the negative effects of the war on its operations, reputation and finances in a 150,000-word filing to the US financial regulator, the Securities and Exchange Commission (SEC).

Relevant reading: FBR freezes Jazz bank accounts for tax evasion of Rs. 5.7 billion

He says bluntly, “We have concluded that material uncertainty remains related to events or conditions that may cast significant doubt on our ability to continue as a going concern such that we may be unable to realize our assets and to discharge our liabilities in the future. normal course of business. »

Amsterdam-based Veon risks angering the Kremlin by mentioning the “war” in Ukraine 183 times in his filing with the SEC. The term “special military operation” is preferred by the Kremlin. Anyone in Russia who uses the word “war” faces a 15-year prison sentence; “conflict” is a close equivalent of “war”. “Any of these risks could have a material adverse effect on our business, financial condition, results of operations or prospects,” the Veon filing adds, “causing a decline in the price of our securities and you [the shareholders] lose all or part of your investment. The Nasdaq stock price has already fallen from US$1.72 at the start of 2022 to $0.66 at Monday’s close.

“The ongoing conflict between Russia and Ukraine” poses a risk, as does “its negative impact on economic conditions and prospects in Russia and Ukraine”, as well as “physical damage to property, infrastructure and assets”.
But he also warns of “the impact of sanctions and export controls on Russia, as well as Russian counter-sanctions.”
Veon is not subject to international sanctions, but the company warns that it is possible – and that its relationship with “designated” – i.e. sanctioned – people has caused it “harm to its reputation “.

Managers and suppliers, among others, may refuse to cooperate with it. Ericsson and Nokia have stopped supplying Russian operators.

“The ongoing war between Russia and Ukraine, including any negative press regarding us,” Veon writes in his filing, “may make it more difficult for us to attract and retain key talent, including senior management. , both at group level and within our core markets.The biggest threat to Veon’s reputation is Russian-controlled LetterOne, which owns 47.58% of the company – a majority stake in a normal environment. Fridman (shown), Petr Aven, Alexey Kuzmichev and German Khan, who have all been sanctioned, run LetterOne.

Fridman and Aven resigned from the board in March. “They will not receive dividends, communications, finance or economic resources, directly or indirectly,” the investor’s chief executive warned. Their company’s assets are effectively frozen, they have no shareholder rights, and the board has no obligation to restore those rights if the sanctions are lifted.

Another problem is that 65% of Veon’s revenue comes from the two warring countries. According to the latest annual results, released in February when the Russian military crossed the Ukrainian border, Veon’s business comes from Russia, where it operates as Beeline, and Ukraine, where it operates as Kyivstar. . “The Russian government has historically imposed limits on the ability of foreigners to own and invest in companies that operate in Russia, and these restrictions have already been increased and will continue to be increased as the ongoing conflict between Russia and Ukraine continues,” Veon said. warns shareholders in its filing with the SEC.

There is also a risk that the company will run out of cash, due to sanctions as well as sluggish economic activity in war-torn Russia and Ukraine. Veon last month transferred two sanctioned loans from Sberbank and Alfa-Bank to the company’s Russian operation, VimpelCom. “Veon was able to ensure that the majority of the group’s ruble liabilities are kept in Russia as a result of this.”

According to the SEC filing, CAPEX was $1.82 billion last year, compared to $1.79 billion in 2020 and $1.63 billion in 2019. Total leverage was 7.6 billion at the end of 2021, plus $2.7 billion in leases. It also has $1.3 billion in cash at its headquarters. It has a $1.25 billion revolving credit facility, which was signed in March 2021, as well as other loans from Alfa Bank, which is also intimately linked to Fridman, and Pakistan, where the company brand is Jazz.

However, Veon’s market capitalization on Nasdaq this morning was only $1.25 billion. “Despite our current liquidity levels, there can be no assurance that our existing cash balances and revolving lines of credit, together with the cash generation made available at group level, would be sufficient to repay our existing liabilities over the medium term,” the company said. said.

“We may encounter technical difficulties in transferring cash to our Russian and Ukrainian operations to meet their loan obligations,” the statement continued. Our ability to conduct currency transfers to and from Russia and Ukraine has been hampered by the ongoing hostilities between the two countries. Indeed, several places of incorporation of our entities are considered by the Russian government as “unfavorable jurisdictions”.

Veon’s credit ratings were reduced, raising interest rates. “Any new capital raised soon will almost certainly have less favorable terms than our current financing arrangements in terms of interest rates, financial covenants and covenants.”

When war broke out in late February, the Central Bank of Russia (CBR) raised interest rates from 9.5% to 20%, then cut them to 17% in April. “Any further increase in interest rates would impact the weighted average cost of capital of our Russian subsidiary, potentially jeopardizing our cash-generating operations in Russia.”

However, the war produces volatility in the market: Ukrainian refugees will not spend their money with Kyivstar, while Beeline consumers will spend less due to Russian sanctions. Meanwhile, Veon is concerned about possible Russian sanctions as a result of the so-called “Yarovaya laws.”

“Operators must disclose information to Russian investigative authorities and gradually install pre-approved equipment to ensure storage of metadata for three years and substance of communications for six months,” it says. There is also the RuNet law, which imposes “several requirements on a wide range of people to ensure the centralization and control of data flows”.

“Install counter-threat equipment provided by Russian authorities, participate in training, and file specific notifications with Russian authorities,” telecom operators are required to do. This will effectively create “an autonomous system that can support the operation of the Internet in Russia in the event of a global network outage and allow the Russian government to centralize, manage and restrict data traffic,” according to the Russian government.
According to the SEC filing, Veon’s Russian subsidiary is “in the process of ensuring compliance with these regulations.”

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