North Korea. Zimbabwe. Tunisia. Algeria. Iraq. Pakistan. Egypt. It’s a list of the world’s flashpoints. And they’re all part of Egyptian entrepreneur Naguib Sawiris’s unique telecoms empire. So when his Orascom group needed financing, and then sought a buyer, it presented Sawiris’s advisers with a unique set of challenges. Eric Ellis in Cairo tells the fascinating story of corporate finance in the new world order.

LAST SEPTEMBER, as the euro was tottering in Greece, threatening to spread its cancer to who-knew-where, US banker Marisa Drew was presented with a fascinating and challenging proposition – to restructure the €12 billion finances of one of the world’s most complex corporate empires for one of the world’s most intriguing businessmen, Egyptian billionaire Naguib Sawiris.

And she had to do this while Sawiris prepared to sell out to a Russian oligarch in an uneasy joint venture with a company from Norway, one of the world’s most transparent corporate jurisdictions. Welcome to business in the new world order.

As Credit Suisse’s European global markets head in London, Drew had first hooked up with Sawiris in early 2007 when Credit Suisse raised $750 million for his Cairo-based mobile telephone company, Orascom Telecom, the money helping to spread Sawiris’s network of 120 million subscribers across the globe.

Sawiris was an unusual client for Drew and Credit Suisse, set apart from the usual parade of eurodebt paper-shufflers crowding the inbox. That’s not just because of his intriguing emerging market profile, with market-leading telcos in Algeria, Pakistan, Tunisia, Bangladesh and large swathes of sub-Saharan Africa such as Zimbabwe and Namibia, as well as his native Egypt. He had also been running a hugely profitable mobile phone operation in a US-occupied Iraq bloodied by insurgents while angling to do the same in North Korea.

Being in these countries, of course, brings massive risks for everyone involved. Nothing demonstrated this more than the volatile situation in Egypt at the end of January. As Cairo burned – while Telenor was suing VimpelCom in London to stop the mega-merger – the sputtering Mubarak regime took Orascom’s popular Mobilnil phone service offline to stop crowds organising against him, this as the embattled president appointed his intelligence chief Omar Suleiman as vice-president to save his 30 year rule. His general counsel at Orascom is apparently Suleiman’s nephew, perhaps as good a connection for him as the contract the Orascom family had to renovate Mubarak’s old Cairo West military base.

Drew says: “We were struck by his high degree of risk tolerance, but not without him working it all through very carefully. Naguib was comfortable operating in markets because he saw the potential they offered.” Which is one way of looking at Iraq, where at one dark point Orascom was spending as much on security as it was on new cell towers.

“Our story is that we always go into difficult places,” Sawiris tells Euromoney. “We always try to get the licence as cheaply as possible.” As he did in Iraq, turning a $5 million contract for the Baghdad environs issued by the US occupying authority in 2003 into a $1.2 billion sale in 2007 to the Kuwaitis.

Would that every deal were as sexy as Iraq for this consummate dealmaker. Take Algeria, where he bought a mobile licence in 2002 for $700 million in what was then a comms-starved nation struggling to rebuild from civil war. Over almost a decade, Orascom built a market-leading brand, Djezzy, which at one point contributed about half of group earnings. On paper Djezzy should be worth as much as $10 billion, but now Algeria is likely worth zero to Sawiris thanks to a spat between his family and Algeria’s strongman president, Abdelaziz Bouteflika, that has turned so poisonous Sawiris has almost given up on it. Sawiris, a businessman normally as comfortable operating in dictatorships as he is in democracies, seems to have met his match.

Perhaps the Russians can save him. In October, Sawiris agreed to sell control of his empire to Moscow-based telco VimpelCom, controlled by the Putin-connected oligarch Mikhail Fridman and his company’s reluctant partner, Telenor of Norway. With VimpelCom’s reach across the former Soviet Union, put together the two will create the world’s fifth-biggest mobile company, with more than 200 million subscribers.

“We think that the Russian element will help with the Algerian problem, whether the Algerians like that or not,” Sawiris tells Euromoney. “Very simply, they were the only buyer who was available at this point. We were not for sale and we don’t conclude this deal as a sale,” he insists.

Under the terms, Sawiris will sell his life’s work for $6.6 billion. He’ll get almost $2 billion, a near 20% stake in the merged group and, possibly, some seats on the board. “I’m going to be a major shareholder. I will have as good rights as the other two partners, so it’s not really a sale,” he says. “I’m sure if I offered the company as a cash deal, I would get a higher price.”

Although the two sides have agreed terms, the deal isn’t yet done. Telenor’s board isn’t happy. It says Fridman’s deal with Sawiris makes little financial and strategic sense and has voted against it. But VimpelCom is pushing on, possibly because Fridman’s Alfa Group covets oil and gas interests in Algeria. Sawiris says: “I cannot say if it is going to go ahead or not. It’s a 50-50 chance. There is this resistance from Telenor because they are in Pakistan and Bangladesh already, so we cannot say the deal is done until it’s done.”

It’s the latest, and surely not the last, chapter in the tale of a unique company with unusual financing needs, which has a highly complex credit story to tell but which, to date, has always been able to secure the funding it needs.

It’s also a parable for the new world of investment banking. As the world’s leading firms all look to emerging markets to grow their revenues, Orascom’s complexities give an insight into the challenges they are likely to face. Sawiris’s empire, like many that have grown and prospered in the emerging markets, is sprawling and difficult to understand. It is no BP or General Motors.

Changing Wind direction

Just look at its businesses and its financings of the past four years. For Drew at Credit Suisse, her first Orascom encounter in 2007 got away well in what were then buoyant markets. But a more noteworthy second engagement with Sawiris came, along with Deutsche Bank, in 2009 when he moved to recast €2.7 billion in legacy and acquisition debt in his increasingly profitable Italian operation, Wind.

Wind Chairman Naguib Sawiris, centre, with former chief executive officer Paolo Dal Pino, left, and new CEO Luigi Gubitosi, considered to be the key figure in securing Sawiris the funding he needed

 

 

Sawiris had acquired Wind in 2005 for about €12 billion, housing it under his Paris-based family company, Weather Investments, which had now become his western markets telco foil to the riskier emerging markets plays – Algeria, Pakistan, Tunisia, Bangladesh, large tracts of sub-Saharan Africa – he had gathered under Orascom in Cairo. Wind’s seller had been the creaking Italian state utility Enel, which, according to Italy-watchers, had almost managed the business into oblivion.

“Wind was highly leveraged when bought,” says Drew, “and carried all this fixed-rate debt that just was no longer priced right for his improved credit quality. Some work was definitely needed.”

But it was mid-2009 and the “improved credit quality” opportunity wasn’t just because of Sawiris’s growing reputation as a dealmaker but as much because rates had been savagely beaten down by the previous year’s sub-prime cataclysms, which sent trans-Atlantic banking reeling. In Europe, there hardly seemed appetite for much of anything.

A cash machine, Wind was well leveraged when Sawiris bought it from Enel. It had paid off some debt but the plan was to releverage again, pay back the acquisition debt – about €2 billion – and hand dividends of about €500 million to Weather in Paris. The residual €200 million was set aside for fees and transaction costs. In this ordinary market, this was a much-needed deal.

“Everyone was saying that we couldn’t do a deal that big at that time,” recalls Drew. “Lo and behold, we did.” The Wind refinancing was one of the biggest in Europe that year and, in Drew’s view, something of a trigger to kick-start moribund European debt markets.

But if that 2009 deal with Sawiris was tricky, it would be just the gentle trailer for the main feature that would come a year later, a combined €12 billion refinancing of Wind and Orascom that one banker likened to a “major sovereign project”, given its breadth of geography, complexity and – again – its size in such inhospitable markets.

Rumours had been swirling Big Telco worldwide that Sawiris could be a seller of his swiftly built but famed Orascom/Weather empire. He’d had a brief but ultimately loveless affair with South Africa’s MTN, Wind Hellas was proving problematic in Athens (and eventually taken into a managed bankruptcy), and the family spat between Maghrebi neighbours in Algiers over Orascom’s market-leading Djezzy operation was now turning into a full-blown crisis for Sawiris when it became clear the Algerian government was expropriating the country’s biggest non-resources foreign investment. Or “stealing it”, as an Orascom executive put it.

In Rome, Wind had cleaned out some of the debt detritus in 2009 from the Enel-related carcass, but there was more work to be done on the balance sheet. By now, Algeria was effectively preventing repatriation of Djezzy earnings, denying Sawiris cashflow while piling massive tax demands upon other liabilities. Suddenly, Wind Italia assumed crucial importance as his milch cow. An Orascom insider says: “If it wasn’t for Wind, Orascom would not be here.”

Sawiris skims off Fiat cream

Sawiris has a reputation as a shrewd dealmaker but one of his better acquisitions wasn’t a war-torn telco licence but Italian businessman Luigi Gubitosi. Sawiris had lured Gubitosi to Wind two months after buying it from Enel in 2005, with what was reputed to be one of Italy’s largest salaries. An LSE and Insead graduate, 40-something Gubitosi had been a well-connected wunderkind of Italian finance, fast-tracked under the Agnelli family’s tutelage at their auto company Fiat to assume the group CFO slot there in the early 2000s.

Such a prestigious job in Italy would put Gubitosi on first-name and summers-in-Tuscan-villa terms with every big financier in the country’s clannish financial fraternity. But if Gubitosi had designs on Fiat’s upper echelons, he was doubly disadvantaged: he was neither an industrial manager nor, more importantly, an Agnelli. (And, according to some in Fiat’s Turin/Milan heartland, being from Italy’s free-wheeling Mezzogiorno and – by default – a supporter of Napoli in the Serie A, he was a sworn football enemy of Fiat’s default Juventus army.) Fiat’s current chairman, John Elkann, is the smooth-skinned US grandson of the late and legendary patriarch, Gianni Agnelli, and 16 years younger than Gubitosi.

Fiat’s loss was Sawiris’s gain. Under Gubitosi, Wind has reported 22 straight quarters of profit growth, now a €14 billion to €15 billion business positioned as Italy’s third-biggest mobile carrier, behind Telecom Italia and Vodafone and, says Drew, “a very reliable cash machine”. She says Wind has been a “phenomenal investment, a wonderfully performing credit. Luigi has a very strong following in capital markets. He’s a man who undersells and over-delivers.”

By late September, market rumours firmed up that Sawiris was talking to the Russians about a takeover/merger via VimpelCom. At the same time, Gubitosi teamed up with Credit Suisse, Deutsche Bank and Sawiris’s suave French CFO at Orascom, Aldo Mareuse, to transform conclusively Wind Italia’s books, availing themselves of low rates while tidying Wind/Orascom for further acquisitions and, increasingly it seemed, for sale to the Russians. “We always had this in the back of our mind to refinance this,” Mareuse says. “This was the time.”

Sawiris recalls the fervour of the day. “All our bankers were telling us: ‘There is over-liquidity now, there is an opportunity now, come.’ And we did.”

In what was dubbed Project Wave, Wind organized its advisers into two teams; one tackling the big stateside centres – New York, Boston, the US west coast – the other the main European financial capitals, and set to work urgently to close the deal, while the euro wobbled precariously out of Greece and then Ireland. “Everyone kept reading about the Pigs being in trouble but we were insisting that the ‘I’ stood for Ireland, not Italy, where Wind was,” says a team member.

A Rome banker, in an aside illustrating the religious command of much of Italian finance, says: “We would virtually stand outside the cathedrals on Sundays if we heard there might be someone coming out with money.” On another occasion, in New York, the team heard there was a Bank of America Merrill Lynch and Citibank investor conference in a nearby hotel “so we lured some of them over to our show and arm-wrestled a few to the ground”.

VimpelCom blows in

Sawiris says he hopes “the Russian element will help with the Algerian problem, whether the Algerians like that or not”

 

Then VimpelCom loomed larger, to complicate the picture. “When VimpelCom arrived,” Drew recalls, “we had to be very flexible and creative, to develop a structure that would work if the deal happened, or didn’t happen – a Plan A and Plan B if you like.”

As VimpelCom became a fixture, the Wind refinancing became even more unusual in that Sawiris was asking creditors to waive or eschew the usual foreclosure caveats and loan options triggers in the event that the VimpelCom deal went ahead and control changed hands. In effect, it was as much as anything a sales job on behalf of the oligarchical Russians, who although clearly well connected politically were less well known and respected in the market than the steady Gubitosi. VimpelCom’s advisers, UBS, sat in on many of the discussions and “apparently learned a lot,” says an insider.

“This was changing a fundamental tenet of such financings,” notes Drew. “We were asking for some fairly big leaps of faith, and eyebrows were raised.” And while Sawiris’s worsening relationship with Algeria over Djezzy wasn’t technically part of the bigger Wind deal, it didn’t help the wider trans-Atlantic investor atmospherics.

In the end, the deal was done just as the euro began to melt down because of the Irish crisis. Backers led by bookrunners Morgan Stanley, Goldman Sachs, Citi, JPMorgan, BNP Paribas, Crédit Agricole, Bank IMI and Barclays were ring-fenced and protected vis-à-vis the prospective Russian takeover.

But Ireland’s crisis had made it all a close-run thing. A relieved Mareuse says: “Right after we priced, there was this Irish issue.” Likewise Drew: “Had we waited two more weeks, it would have been a very different proposition.” It was, says Mareuse, “perfect timing”.

Wind emerged with €6.6 billion of its €8.7 billion debt rescheduled, mostly until early 2018. Mareuse says: “There is some due in 2013/14, but we lowered the interest cost by four points from 11.5% to 7.25% while providing some flexibility to allow Wind to make some acquisitions. Now there is no financing issue at Wind, it’s all clear.”

Today, with a 2010/11 ebitda of €2.1 billion, Wind’s suggested worth – on an average industry earnings multiple of seven – is about €14 billion to €15 billion. After debt, it nets out as a business worth about €6 billion to €7 billion. That compares with the $6.6 billion the Russians have agreed to pay Sawiris for most of his telco assets, including Wind.

Drew boasts that the Wind refinancing was the largest non-investment-grade bond transaction globally in 2010, and the largest senior secured bond deal for a European corporate ever consummated. “It was quite a ride,” she says. Alongside Wind, HSBC, JPMorgan, Barclays, National Bank of Egypt, Bank Misr and BNP Paribas signed up to recast another €2.5 billion of Orascom debt.

Drew says: “This was a seminal deal for me personally and for the European leveraged finance markets given its size, complexity and groundbreaking structure, all being done in a volatile market where Ireland’s woes were causing questions about the future of the euro.”

The passionate Sawiris has a different view from his charges about why the deal got done. “It’s not timing, it’s performance,” he insists. “We have a track record. Wind has always overperformed, it deleverages beyond analysts’ expectations.

“We have grown from ebitda of €1.3 billion to €2.1 billion in three years! In Italy, a mature market! Nobody has ever done that before in the history of telecoms. That’s why when we came to the market, we were a good asset anyhow. I don’t want to brag. I have my failures too. I consider Greece a failure, it balances my good things. There is nobody in the world who scores on everything.

“My family and we all have a great reputation. We’ve never reneged on a deal, we’ve never defaulted on any loan in our life, on any financial transaction in 40 to 50 years in business – none of us, my family members – never.”

Sawiris says he has no critical banking relationship. “We have Credit Suisse, Merrill Lynch, Morgan Stanley, Citi and now, recently, Goldman Sachs, who were on the wrong side when we did the Wind deal, and they thought long, and they suffered under that.”

The sun never sets on Sawiris

The endless succession of billboards punctuating the mayhem of Cairo’s bustling Corniche hint at the extraordinary ride it has been to be Naguib Sawiris and for all those – bankers, investors, dictators, revolutionaries and generals – who travel with him.

Stretching along the Nile from the iconic October 6 Bridge that marks the 1973 war against Israel to a vastly different symbol of modern Egypt – the Sawiris family’s glitzy Nile City Towers HQ – the placards advertise how Sawiris’s sprawling telco “Connects The World”.

Indeed, rather like the British Empire that once ruled here, the sun never sets on Sawiris, whose realm rises in North Korea – of all markets – shines through vast tracts of Asia, the Middle East, Africa to Europe and across the Atlantic to set way west on Canada’s Pacific coast. It’s a corporation for a new world order, that would not be were the US not in Iraq, had Islamism triumphed over moderation, had communism not crumbled across Europe. Sawiris has cut deals in kleptocracies and dictatorships – Zimbabwe (where a Mugabe nephew, Leo, is his business partner), Tunisia and Pakistan – and democracies such as Canada, Greece and Italy. His family builds US military facilities in Afghanistan, Iraq and Egypt while he is welcomed as a Hero of the Nation in Pyongyang, the most strident enemy of the US, where in January he met “Dear Leader” Kim Jong Il, believed to be the only foreign businessman to do so publicly since 1998.

Connecting GSMs is one thing but the breadth of the Sawiris realm makes it a big challenge to connect Orascom financially, and enable markets to understand and value it. There’s no common currency to knit, say, the Central African Republic to Pakistan, or North Korea to Burundi.

Sawiris compares his organically grown Orascom Telecom with the UAE government-owned Etisalat, which went global by “writing cheques for $10 billion. You can make a bid on Vodafone if you want a global company,” he says. Noting Etisalat’s petro-dollar foundations and royal ownership, Sawiris remarks: “If you have the money, it’s easy to be global, you can buy General Motors. But if you think you can go out and grow the value like we did, well it’s not going to happen.”

Contrary to widespread perception – in spite of the VimpelCom deal – Sawiris insists: “I’m not a trader, otherwise I would’ve sold to anybody, to stock exchange or to private equity. No, this is an industrial transaction.

“I’ve been saying for a long time that telcos will consolidate, exactly like what happened with banking and insurance because the cost structure in terms of equipment is cheaper. Vodafone can call Apple and make sure they get the iPhone at a good price for all their markets; and Apple will take their call and put us at the end of the line; or millions of BlackBerrys at a special price we cannot get. And the margin on these handsets is 5% maximum, so if they get a 10% discount they already have a price advantage in the market that you have to match, and if you match, you bleed.

“They can provide roaming because of their footprint free of charge. We cannot do that. They can steer the traffic for roamers to their network based on their network. Anyone who remains as a small or single-country operator will have so many disadvantages. And when they borrow, they do at Libor plus – what? 0.5%? When we do, it’s Libor plus 2%, plus 3%, because we are ‘emerging market’ and we have a smaller balance sheet.”

Sawiris freely admits that the sum of the parts of Orascom/Wind is far greater than the whole. “Not only greater but double, we are undervalued by 50%.” He attributes that to Algeria, which he calculates at 50% of the implied value of Orascom Telecom. “The Algerian asset today is valued at maybe 25% of its real value. They [the Algerian government] have done so much to it, maybe they’ll just take it and not pay anything.”

Such a sprawl creates headaches for Mareuse, a former M&A specialist at Credit Suisse First Boston who joined Sawiris in 2002. “Orascom had been created ad hoc, without a structure, without a financing strategy, so everything had to be built,” he says.

Mareuse says one of his biggest problems is getting western markets to properly understand and rate Orascom. “We used to give guidance to the street until 2008 in dollars but we stopped giving guidance in 2009 because we started experiencing serial currency fluctuations in Tunisia, Pakistan and Algeria and so our guidance was missed because the Pakistani rupee went down 20%, the dinar was down 15% and so on, and it’s impossible to hedge these currencies. In certain countries, such as Pakistan, you can hedge your debt but you can’t hedge, obviously, your revenues.

“We report in dollars because we operate in markets where the local currencies mostly try to be linked to the dollar, but also because it’s a currency for international markets to refer to and understand.”

Mareuse says there are two examples of countries that are difficult to manage. First, Algeria – “a very rich country with $50 billion in foreign reserves but which saw significant depreciation in the currency. The main problem with Algeria is that it’s a country that doesn’t produce much of anything, so when the dollar generally started to go down globally, imports started to flow in because of the huge earnings for its oil and gas and then to restrict these imports they just devalued the currency – and we earn our revenue domestically in dinars. Economically this didn’t make any sense because this country has no debt but [we fell victim to] the way they manage their import-export. It could go much further but the government has a backward mentality.”

Secondly, he says, there is Pakistan, which suffers “ongoing problems and turmoil and (as a result) we see this devaluation every year”.

Sawiris maps out a buoyant field for his operations. Yes, he admits, there are “regulatory problems” with the Leo operation in Namibia, where the company is number two in the market, but the business is fine. In Pakistan, where Orascom built Mobilink from 80,000 subscribers in 2002 to a market-leading 30 million today, Sawiris’s network is clearly ahead of competing operations run by VimpelCom shareholder Telenor and Etisalat. “Pakistan is a very good market that is only difficult when there are natural crises and political problems,” he says. He counts Pakistan’s deposed former president, Pervez Musharraf, as among his friends. He has just finished reading Musharraf’s memoirs. “He was extremely good for Pakistan. They lost a great man. I truly hope he will come back.”

Impeccable market timing

A good example of how savvy Sawiris is was apparent recently in Tunisia where, under pressure from bankers, he sold his market-leading Tunisiana operation for $1.2 billion to a joint venture of the Qatari royal family’s QTel and the billionaire Sakher El Materi, the son-in-law of the ousted and disgraced dictator Zine El Abidine Ben Ali notorious for his pet tiger, which he liked to trot out at dinner parties.

Conceived as part of Orascom’s refinancing, the Tunisiana deal closed just a week before Ben Ali was hounded from office in a popular revolution in Tunisia, where El Materi’s lifestyle had been described by US ambassador to Tunis Robert Godec, in a cable made public by the whistle-blowing WikiLeaks website in December last year. (Sawiris has been a keen follower – and supporter – of WikiLeaks). Sawiris adviser Vincent Le Stradic of Lazards in Paris says: “I don’t think he saw [the Tunisian uprising] coming but he does have very good timing.” Or, as an Orascom insider puts it: “Not so smart from the Qataris.”

Sawiris says: “We made our value mostly by expanding outside our [Egypt’s] borders.” He credits this strategy to the rise of protectionism within the Egyptian economy under prime minister Atef Ebeid’s government in the early 2000s, which made domestic investment “extremely difficult”. He remarks, with not a little irony, that “we are thankful to the prime minister we had here”. (After being bundled from office in 2004, the 78-year-old Ebeid now occupies a comfortable semi-retired sinecure as chairman of the Arab International Bank, which is jointly controlled by the Egyptian and Libyan governments and is a much favoured repository for pensioned state officials.)

“For five years, the country completely stagnated, so we were very lucky [that Ebeid was in office] because we moved outside our borders.” Sawiris adds. “We had a good concept but we couldn’t do it any more here so we did it outside.”

The sclerotic Ebeid premiership in Egypt coincided with the end of the decade-long civil war between Islamists and the military-backed regime in Algeria. As Ebeid went into protectionist mode in Cairo, strongman Abdelaziz Bouteflika seized the presidency in neighbouring Algiers. The war had devastated Algeria, and Bouteflika, who served his political apprenticeship opposing French colonial rule in Algeria for the Front de Libération Nationale, regarded as the party of independence, set about modernizing his country, luring foreign investment to the wounded oil-and-gas-rich north African nation at bargain-basement prices for those brave enough to enter.

Cement wars hit telecoms

Feeling starved of opportunity in Egypt, the Sawiris family had the necessary appetite for risk. “My youngest brother decided to go massively [offshore] at that time,” recalls Sawiris. “He built a cement plant practically everywhere.” But so too did Naguib Sawiris, in the then largely nonexistent Algerian telecom sector. In 2002, he launched mobile services in a nation starved of consumer communications, just as brother Nassef’s Orascom Construction Industries set up the Algerian Cement Company.

Both became hugely successful cash cows. Nassef’s cement business caught a massive construction boom across the Maghreb, while Naguib’s Djezzy became Algeria’s leading mobile brand virtually from day one – and still is. Today, with its 60% market share, Djezzy comprises just under half Orascom Telecom’s total revenues.

Then, in December 2008, came the beginnings of what would be a big blow for Naguib in Algeria, if not a business disaster, that neither Sawiris brother saw coming. It would severely strain family relations, observers say.

Nassef sold Orascom Cement to France’s Lafarge for $12.8 billion. The jewel in the Orascom Cement crown was Algeria where France had fought – and lost – a bitter war against the FLN in the 1950s. As a veteran of that campaign, the statist Bouteflika saw Algeria as a titan of the rising developing world, recovering from its war wounds to be a regional champion. Although outwardly pro-business, he was nevertheless offended that he had not been informed that a key company in his economy had changed hands – and would now be owned by the French.

The Lafarge transaction was described by one banker as the least diplomatic deal one could do in Algeria. It was a prime example of the theatre the Sawiris family plays to across the developing world where lines between politics and business are often blurred if not nonexistent. The family is as skilled at making deals with politicians and potentates as it is with fellow big businesspeople. But, as an insider observes: “With Algeria’s Bouteflika, someone forgot to join the dots.”

Nassef got the Lafarge deal away but not long after Naguib started feeling official heat from a deeply miffed Algiers. Today, the Algerian authorities are demanding that Djezzy pays about $1 billion in back taxes, numbers described as laughable by Orascom insiders. “It’s called creeping expropriation; essentially they are trying to steal it,” a company insider says.

Algeria has wounded Sawiris deeply. When Euromoney opens discussions with the simple ice-breaker question: “How’s business?” he responds unprompted: “We are overshadowed by this Algerian problem. It’s caused a lot of damage to us beyond belief and their behaviour is beyond belief. If we forget that, all our operations are over-exceeding their results.”

So why sell to the Russians? “Very simply, they were the only buyer who was available at this point and time. We also think that the Russian element will help with the Algerian problem, whether the Algerians like that or not. We told them [VimpelCom] you have to buy the company with the issue in Algeria. They understand this.” That remains to be seen. On October 6 last year, two days after Sawiris and VimpelCom announced their $6.6 billion deal, Russian president Dmitri Medvedev made an unscheduled state visit to Algiers to meet Bouteflika. Medvedev was accompanied to Bouteflika’s office by VimpelCom’s chief executive, the former McKinsey consultant Alexander Izosimov. Also among the Medvedev entourage was the Russian energy minister, businessman Sergei Schmatko, bearing a letter from Russian prime minister Vladimir Putin, requesting that Algeria approve the sale of BP’s Algerian oil assets to Russian oil firm TNK, which is controlled by Russia’s second-richest man, Mikhail Fridman, who is also a big shareholder in VimpelCom.

Whether this will move Bouteflika remains to be seen. Mareuse says the way Algiers has treated Orascom sends a “very powerful message to the investment community about what it’s like to do business in Algeria”.

Mareuse says a reliable measure of Djezzy’s worth in Algeria is next door in the similar-sized Moroccan market where France Telecom recently bought a 40% stake in the second largest carrier, Meditel, for $840 million. Meditel transacted at 10 times its most recent ebitda. If that is applied to the Djezzy business, Mareuse says, “you get to $10 billion”.

That might well be true in an ideal world, viewed from a City analyst’s financial model. But that modelling counts for nothing when that asset is subject to a creeping expropriation by a mercurial government simply because it can – Sawiris’s near-permanent bugbear. “Multiples are underrated anyhow,” he says. “If you want to buy on multiples you should buy, that’s a no-brainer. ”

The flip side of that is Orascom’s stake in Tunisia, which it sold at 6.7 times earnings. Mareuse says the P/E comparisons between Morocco and Tunisia are not valid because Tunisia “is a much smaller market”.

Mareuse says the Algerians have created a problem for themselves with Djezzy. “They want to own a company that they cannot manage. They – the government – already have one telco asset in Algeria that they are not very good at managing so they will end up with two companies with about 80% of the market and 95% of the value of the market and not knowing how to manage them. I think they choose not to understand that but at some point they will realize this and the Russian deal is a way out for them. They can say: ‘We don’t like the Egyptians’, or: ‘We lost to them at football so let’s go with the Russians where we have much better relationships because we buy MiGs from them, blah blah blah blah…, if I was trying to save my face as the Algerian government, I would support this.”

Sawiris says: “I’m in a good position because if it happens it’s OK, and if it doesn’t happen it’s also OK. The more you wait, the more these wannabe global players will look at me – and me at them.”