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Shareholders at Egypt's Orascom Telecom (OT) agreed on Sunday to an $800 million rights issue to strengthen the firm's balance sheet as it works to resolve a dispute with the Algerian tax authority. Market heavyweight Orascom had said it was seeking shareholder approval for the rights issue, and would use the money to cover any cash shortfall after Algeria ruled it owed $596.6 million in back taxes and penalties.
Orascom, whose Algeria unit operates a network under the brand name Djezzy, will put up 20 percent of the disputed amount as a legal step that will allow it to appeal against the ruling, spokeswoman Manal Abdel Hamid said. But the funds for the 20 percent payment, or roughly $119 million, will come from Djezzy's cash balances and not from the capital increase, she said.
"It is a prerequisite to discuss the rest," she said, adding that the company would file the appeal shortly. "It is possible for the entire 20 percent to be refunded in full". Shareholders approved the proposed rights issue in a hand vote, a Reuters correspondent present at the meeting said. The rights issue still needs Egyptian regulatory approval before it can go ahead. "The board has the right to decide whenever it sees appropriate to actually to do the rights issue," Abdel Hamid said.
Orascom said earlier that its parent company Weather Investments had committed to subscribing to 51 percent of the capital increase and would cover any shortfall. Weather Investments is the ownership vehicle of billionaire businessman Naguib Sawiris, and controls 50.6 percent of Orascom, according to Reuters data.
Orascom runs mobile phone operations from North Africa to North Korea. Djezzy had revenue of $1.8 billion in 2007. Algeria, in its tax ruling, said Orascom had not kept proper accounts in 2005-2007. Orascom said at the time the ruling was based on an "unfounded and unacceptable allegation" and that it would challenge the assessment.

Copyright Reuters, 2009

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