April 30, 2008 / 1:18 PM / 11 years ago

U.S. pressures Turkcell to abandon Syria deal

DAMASCUS (Reuters) - The United States is putting pressure on Turkish mobile phone operator Turkcell to abandon a $1 billion takeover of a cellphone company owned by a Syrian tycoon targeted by U.S. sanctions, diplomats and Arab financiers said on Wednesday.

The U.S. Treasury Department is warning American investors in Turkcell (TCELL.IS) (TKC.N), which is listed on the Istanbul and New York bourse, about the company’s plan to buy the leading Syrian operator Syriatel, they told Reuters.

Syriatel is at least 69 percent owned by Rami Makhlouf, the cousin of President Bashar al-Assad. Washington imposed high profile sanctions on Makhlouf in February for alleged involvement in public corruption in Syria as relations between the Damascus government and the United States plummeted.

“The U.S. Treasury communicated indirectly with U.S. investors in Turkcell to reconsider the deal and hinted that there could be legal implications of doing a business transaction involving a huge amount of dollars upfront with Rami Makhlouf,” one of the diplomats following the deal told Reuters.

The sanctions explicitly state no U.S citizen can do business with Makhlouf. Several Turkcell executives have American citizenship and hold shares in the company, industry sources said.

Makhlouf, 39, has denied the U.S. charges, saying he does not have assets in the United States and his businesses that employ thousands of Syrians are legitimate.

“America is serious about making the sanctions against Rami (Makhlouf) stick. The way the Treasury is applying the pressure is through whispering to investors’ ears,” said the diplomat.

Makhlouf, Syria’s most powerful businessman, stands to receive close to an estimated $1 billion in cash if the deal for Turkcell to buy most of his shares goes ahead. The U.S. pressure has contributed to the delay in the deal, the sources said.

Turkcell said this month that “any possible U.S. citizenship” by its management would not affect the talks, despite the sanctions against Makhlouf, which were imposed while the deal was being negotiated.

“We are aware of the situation between the United States and Syria. But since Turkcell is a Turkey-based company and there is no legal restriction on the purchase of Syriatel, the situation does not have any impact on the talks,” Turkcell said.

Sureyya Ciliv, Turkcell’s chief executive officer, said in late February that he had expected to complete talks with Syriatel in a month.

A senior Arab banker said the deal could still be signed after Turkcell negotiated a lower price following the sanctions on Makhlouf.

“The Americans have succeeded in delaying the deal, but it is still on,” the financier said.

STRATEGIC RAMIFICATIONS?

Gulf mobile operator Zain (ZAIN.KW) has said it was also interested in buying Syriatel. Saad al-Barrak, Zain’s chief executive, last week described competition to acquire Syriatel as strong but he could not be drawn on the status of any talks.

A Turkcell-Syriatel deal would be one of the largest in the region’s telecom sector. The two companies say they have a majority share of the market in their respective countries.

Political stakes are also high. Syria has been rebuilding ties with Turkey strained by Syria’s support for Kurdish separatists a decade ago, and Turkey has been mediating to relaunch peace talks between Israel and Damascus.

Turkish Prime Minister Tayyip Erdogan was in the Syrian capital on Saturday to open a large Syria-Turkish business forum. Makhlouf has said that a deal with Turkcell would further improve relations with Turkey.

High-level politicians from both countries have been consulted on the takeover, the diplomats said.

“The fate of this deal has strategic ramifications for relations between Syria and Turkey and the American-led drive to isolate Syria,” another diplomat said.

The United States imposed sanctions on Syria in 2004 for supporting anti-U.S. groups in the Middle East. The Treasury Department designated Makhlouf under an expansion of the sanctions announced in an executive order by President George W. Bush on February 13 as “a regime insider whom improperly benefits from and aids the public corruption of Syrian regime officials.”

The order freezes any assets Makhlouf holds under U.S. jurisdiction and forbids American citizens or entities from doing business with him.

Editing by Richard Hubbard

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