UPDATE 1-UK court to decide on Turkish tycoon's Turkcell stake

Mon Jan 28, 2013 12:23pm EST

* Ruling could strip founder of stake in firm

* Dispute pits Turkish tycoon against Russian billionaire

* Disagreement has hobbled Turkcell's development (Adds analysts, details, background throughout)

By Nick Tattersall

ISTANBUL, Jan 28 (Reuters) - An arcane British appeals court will decide this week whether one of Turkey's richest tycoons can retain control of Turkcell, the country's biggest mobile phone operator, in a dispute pitting him against Russian billionaire Mikhail Fridman.

The Privy Council, one of Britain's oldest institutions whose members are appointed by the Queen, will rule on Wednesday in the long-running boardroom battle between Mehmet Emin Karamehmet, one of Turkey's most powerful businessmen, and Altimo, the telecoms arm of Fridman's Alfa Group.

The Privy Council, the highest court of appeal for many Commonwealth countries, is hearing the case because Karamehmet holds his stake in Turkcell through his Cukurova holding company, registered in the British Virgin Islands.

Should it rule in Altimo's favour, the Russian company could be awarded Karamehmet's 13.8 percent stake in Turkcell, which also carries controlling rights through its complex management structure, leaving Turkcell with no major Turkish shareholder.

The dispute centres around a loan taken in 2005 by Cukurova from Altimo, which indirectly holds 13.2 percent of Turkcell. Nordic telecoms group TeliaSonera holds 37 percent of Turkcell while the remaining 34 percent is largely free float.

Cukurova put its stake in Turkcell up as collateral for the loan and the argument hinges on whether that loan fell into default. Altimo says Cukurova failed to pay in time, while Cukurova maintains Altimo blocked its repayment.

"The resolution is likely to be favourable to Alfa, which won most previous court rulings ... This opens the way to creating a functioning new board of directors," said Alexandra Serova, a Moscow-based analyst at Renaissance Capital.

Other analysts in Turkey said the case, which has been highly political, was expected to go in favour of Cukurova.

The dispute has left Turkcell unable to agree on the composition of its board for the past two years, and unable to distribute dividends or pursue a coherent growth strategy.

RUSSIAN INTEREST

Karamehmet, 68, whose interests range from energy and construction to satellite television and newspapers, has been embroiled in legal and boardroom struggles with his Russian and Nordic partners in Turkcell for years.

After founding the telecoms firm in 1994, he was forced to quit as chairman in 2010 as Altimo and TeliaSonera tried to limit his influence, although he still managed to install ally Colin Williams as his successor.

Altimo and TeliaSonera regard Williams, a designated independent board member, as a proxy for Karamehmet and the three have been unable to agree on the composition of the board since then, prompting warnings from the Turkish market regulator and the threat of legal action from minority shareholders.

Turkish Transport and Communications Minister Binali Yildirim signalled last year the government may intervene in the public interest if the dispute dragged on, and some analysts believe there could be resistance if Wednesday's ruling leaves Turkcell without a major Turkish shareholder.

"If Cukurova loses the case, it may give rise to the possibility that Turkish regulators would intervene to keep it as a Turkish company and the current situation may become more complex," said Murat Ignebekcili, senior analyst at Istanbul-based Burgan Securities.

The uncertainty helped push Turkcell shares down 2.5 percent on Monday, although they were still outperforming a 4.2 percent fall by the main Istanbul index. A resolution could ultimately lift Turkcell stock if it paves the way for the resumption of dividend payments and a clear growth plan.

Should Russia's Alfa Group win the case, it could try to bring Turkcell together with telecoms group Vimpelcom, in which it also holds a stake, Renaissance Capital's Serova said in a research note.

"Making a deal with the Turkish government would be key for Alfa to make any steps in this direction," the note said.

"We know Mikhail Fridman has travelled to Turkey to meet high level Turkish authorities ... While we don't know the details of those meetings we suspect getting support in its dealings with Turkcell would have been on the agenda." (Additional reporting by Evren Ballim and Seltem Iyigun; Editing by David Cowell)

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