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. Last Updated: 07/27/2016

Police Target Alfa in MegaFon Probe

VedomostiMegaFon owners are wrangling with Alfa over the sale of a 25 percent stake.
Police have searched the office of Alfa Group's telecoms arm after prosecutors opened a fraud probe into its purchase of a one-quarter stake in mobile operator MegaFon, Alfa said.

Monday's raid, and reports that prosecutors have launched a criminal probe against businessman Leonid Rozhetskin, who sold the MegaFon stake to Alfa in 2003, ratchet up a bitter dispute over control of Russia's third-largest mobile firm.

MegaFon's owners have been at loggerheads since Alfa, a conglomerate which owns a stake in No. 2 mobile phone operator VimpelCom, bought the MegaFon shares for $300 million from Rozhetskin's investment firm, LV Finance.

Bermuda-based emerging markets fund IPOC International Growth Fund later challenged the purchase through courts in Europe and the British Virgin Islands, saying it had a prior option to buy the shares from LV Finance. The International Chamber of Commerce in Geneva ruled in IPOC's favor last August.

Alfa Telecom said late Monday that police had come to its offices seeking documents related to the case from CT Mobile, a subsidiary which directly owns the disputed MegaFon stake, but had left empty-handed.

"This is further evidence of the pressure being applied on Alfa Telecom in the question of ownership of the MegaFon stake," vice president Kirill Babayev said in a statement.

Vedomosti said Rozhetskin, together with two associates, was the target of an investigation into suspected fraud over the MegaFon stake sale launched in December.

Rozhetskin, who could not be reached for comment, stepped down as a deputy chairman of metals giant Norilsk Nickel in January.

Sweden's TeliaSonera owns 35.6 percent of MegaFon, Telekominvest has 31.3 percent and IPOC has 6.5 percent. TeliaSonera also owns 26 percent of Telekominvest, boosting its overall interest in MegaFon to 43.8 percent.

The three vowed two weeks ago to team up to force out Alfa and enable MegaFon, which has nearly 15 million customers, to launch an initial public offering. Telekominvest is widely believed by investors to be close to IT and Communications Minister Leonid Reiman, although he has denied being a beneficial owner.

"This is a continuation of the old saga by new means," said Alexei Yakovitsky, a telecoms analyst at United Financial Group. Yakovitsky said there were risks to VimpelCom stemming from Alfa's role in the MegaFon row after it was hit with a $158 million back tax bill in December, later cut to $17 million.

But with growth in Russia's booming mobile market set to slow, time may be running short to resolve the ownership dispute and launch a successful IPO.

IPOC confirmed it had filed a complaint to "the appropriate Russian authorities" in the MegaFon case, seeking to uphold the arbitration ruling which it said found clear evidence of wrongdoing by LV Finance and Alfa.

"IPOC has always argued that the integrity of contracts with Russian companies is at stake in the MegaFon ownership dispute," IPOC said in a statement, arguing that the sale to Alfa had violated its prior purchase option.

"Knowingly selling the same stake twice would be a crime in every developed economy in the world. It should be no different in Russia."