April 23, 2013 3:35 pm

US injunction deals blow to Turkcell tycoon

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Mehmet Karamehmet©Reuters

Mehmet Karamehmet, one of Turkey's best-known tycoons

A recent US court decision could “kill” the $1.5bn-$3bn effort by one of Turkey’s richest men to regain control over Turkcell, the country’s biggest mobile group, his lawyers have warned.

The injunction issued by the New York Southern district court focuses on the attempt by Mehmet Karamehmet, chairman and chief executive of the Çukurova holding group, to wrest back the Turkcell controlling stake from Alfa, the conglomerate headed by Mikhail Fridman, the Russian billionaire.

Before issuing the order at the petition of TeliaSonera, the Nordic telecommunications group, temporarily freezing Çukurova assets ahead of a final decision later in the year, JuMdge Denise Cote said she was unswayed by the consideration “that any injunction I issue may very well make it impossible for the redemption transaction to proceed”.

Her so far unreported decision last week came as the six-year struggle over Turkcell between Mr Karamehmet and Mr Fridman, involving courts in multiple jurisdictions, nears its end.

In a ruling at the heart of the case, the UK Privy Council decided in January that Çukurova should be given the opportunity to regain control of Turkcell – as long as it repaid a $1.4bn loan to Alfa for which the stake served as collateral.

The British court has yet to decide on the applicable terms and interest, with Çukurova arguing that it should repay $1.5bn within 90 days of a final decision on the case and Alfa asking for more than $3bn within 30 days.

Mr Karamehmet has said he and Çukurova lack the resources themselves to pay the debt to Alfa, making necessary an approach to “major banks” for financing, with the contested shares again acting as collateral, together with other assets.

But even as Çukurova seeks to put together a syndicate to raise the funds, its ability to do so has been thrown into doubt by the temporary injunction issued in New York.

That order forbids Mr Karamehmet, the company itself and “any financial institutions” from selling, transferring or pledging the group’s assets because of a separate, outstanding claim against Çukurova for about $1bn.

The court specified that the injunction applied to “any funds that Çukurova receives in connection with its efforts to raise financing” to regain the Turkcell controlling stake, as well as to the redemption itself.

While the move to freeze Çukurova’s assets may have limited direct impact, given that the group is not based in the US, all sides in the case agreed that it could have a chilling effect on its attempt to regain control of Turkcell.

“This order and most any version thereof . . . will kill the redemption. It won’t happen,” David Lindsey, a lawyer for Çukurova, told the court before the injunction was granted.

He added that the relevant banks would “see this [order] and they will simply not finance this scheme. And if it’s not financed by the banks, it won’t go forward. That opportunity will be lost, very soon, leaving the shares with Alfa.”

The claim at the centre of the US injunction concerns TeliaSonera, which was awarded $932m plus interest against Çukurova by a Geneva tribunal in 2011 and which is pursuing Mr Karamehmet’s group in various jurisdictions, including the US, for the as yet unpaid funds.

TeliaSonera, itself a shareholder in Turkcell, is co-operating with Alfa against Çukurova in what Mr Karamehmet depicts as an attempt to prevent Çukurova from regaining control of Turkcell despite the Privy Council ruling that it should have the opportunity to do so.

Judge Cote also increased contempt of court fines on Çukurova to $100,000 a weekday and called for a hearing in June on whether to order the group to permanently turn over assets to Sonera.

Çukurova has said it has no business or assets in the US, questioning the original Geneva ruling, which it says is about to be reviewed, as well as its applicability internationally.

Turkcell, Çukurova and Alfa declined to comment, while TeliaSonera hailed the injunction as a “step in the right direction”.

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