Vietnam - Russian investment in mobile

VimpelCom Confirms 40% Stake in Vietnamese JV, Edges Towards Purchase of Cambodian Operator

The joint venture in Vietnam heralds a new strategic direction for VimpelCom, and is likely to see it expand further in Asia.

Significance - After months of discussion, VimpelCom has confirmed that it has signed a joint venture to establish a mobile operator in Vietnam, receiving a 40% stake for US$267 million.

Implications - VimpelCom sees the deal as providing a platform for further growth in Asia, with a deal lined up for Cambodian operator Sotelco and the markets of Laos and Myanmar also on the radar.

Outlook - Global Insight expects VimpelCom's Vietnamese project to herald a new strategic direction, of expansion and acquisitions in Asia, running alongside its product diversification in Russia and its expansion across the CIS.

Russian mobile operator VimpelCom has confirmed that it has signed a joint venture (JV) with Vietnam's state-owned telco Global Telecommunications Corp (GTEL) and its subsidiary GTEL TSC to establish a mobile operator in Vietnam. VimpelCom will receive a 40% interest in the company, for an equity investment of US$267 million. GTEL will have an equity interest of 51% in the new operator and GTEL TSC will have an equity interest of 9%. The deal is subject to regulatory approval. VimpelCom had first indicated last year that it was in talks to establish the JV, with plans in place to invest around US$1 billion in the project.

A number of press reports also indicate that the VimpelCom board has approved a deal to buy Cambodian mobile operator Sotelco, for around US$28 million. Sotelco is currently owned by Russian holding Altimo, the telecoms arm of Russian holding Alfa, which itself owns a 44% stake in VimpelCom. A 90% stake in Sotelco was bought by Altimo last year for an undisclosed sum. At the time, it was widely reported that the move had been made with a view to selling on the operator to VimpelCom.

Outlook and Implications

Vietnamese Telecoms Sector Not Yet Fully Opened to Foreign Investors: Commenting on the deal, Alexander Izosimov, CEO of VimpelCom, said "with a population of 86 million and a fast growing economy, the Vietnamese market holds great promise for VimpelCom and we believe the GTEL-Mobile growth dynamics make it an ideal place for us to begin building our international growth platform". Vietnam is one of the few emerging markets that has yet to open up its telecoms sector fully to foreign investors. The government is currently in the process of privatising its state-owned mobile operators, an initiative that has attracted investment interests from a number of foreign telecoms giants, including the likes of Vodafone, France Telecom, SingTel, NTT DoCoMo, and Telenor.

Low Mobile Penetration in Cambodia: Cambodia, with a population of more than 14 million, is also shaping up to become a strong-growing market, with its mobile penetration level still below 20%. Millicom International currently controls more than 60% of the market through its local unit, Mobitel. Other players in the market include Applifone, Cambodia Advance Communications, Cambodia Shinawatra (a member of the Temasek empire), and TM International Cambodia.

New Strategic Direction for VimpelCom: VimpelCom's Vietnamese JV will represent its first foray beyond the Commonwealth of Independent States (CIS) region. The operator currently has units in Russia, Kazakhstan, Ukraine, Armenia, Uzbekistan, Tajikistan, and Georgia. At the end of the first quarter of 2008, its Russian operations generated more than 85% of the total group net operating revenue of US$2.108 billion. By securing a deal in Vietnam, VimpelCom has now given itself a platform for further international growth. Izosimov has previously hinted that the company would look to expand to the neighbouring markets of Cambodia, Laos, and Myanmar if it finalised its Vietnamese project, and it appears that momentum is already building for entrance into Cambodia. The emerging markets of Asia have been on the radar of European operators for some time, as they offer high-growth potential at a time when domestic European markets are already highly penetrated. TeliaSonera and Telenor are already operational in these regions. Global Insight therefore expects VimpelCom's confirmation of its Vietnamese JV to herald a new strategic direction, of expansion and acquisitions in Asia, running alongside its product diversification in Russia and its expansion across the CIS.