(Adds comment from Vimpelcom CEO, S&P rating)
By John Bowker and Victoria Howley
MOSCOW/LONDON Oct 6 (Reuters) - Russian President Dmitry
Medvedev faces an uphill battle on Wednesday convincing Algeria
to approve the sale of its biggest mobile telephone operator and
BP's Algerian assets to Russian companies.
On the line is Vimpelcom's bid to become the world's fifth
largest mobile phone operator and enter the developed European
market by buying control of Egyptian tycoon Naguib Sawiris's
telecoms assets for $6.6 billion.
The jewel in the crown of the proposed deal is Orascom
Telecom's Algerian unit Djezzy, its biggest revenue earner,
which Algeria's government is trying to nationalise.
With no break fees on the deal, either side could walk away
from the agreement without financial penalty.
Vimpelcom Chief Executive Alexander Izosimov, travelling
with Medvedev, said he hoped Djezzy would be discussed in the
Russia-Algeria talks, adding Vimpelcom would consider selling
"if the Algerian government insists".
"I am ready to raise this question because it is a big
investment, one of the biggest Russian investments in the
Algerian economy," he told reporters in Algiers.
Algerian law gives the government the right to block any
sale of the Algerian unit to a foreign firm.
With the complex Djezzy and BP transactions depending on the
approval of Algerian President Abdelaziz Bouteflika, Medvedev's
ability to clinch big deals for Russian business -- the hallmark
of his patron Vladimir Putin -- will be put to the test.
Algeria has already rejected approaches from Egyptian
President Hosni Mubarak and South African President Jacob Zuma
to sanction the sale of Djezzy to South Africa's MTN and has
said it would make an offer for the unit within months.
But Elena Mills, a senior analyst with Alfa Bank in Moscow,
said interest in energy assets in Russia and Algeria could help
the countries find a resolution over Vimpelcom too.
"The presence of Medvedev is not exactly a coincidence," she
said. "Now a deal has been announced he can raise the issue of
Djezzy. That Russia and Algeria both have oil and gas assets is
helpful -- a common ground could be found."
SAWIRIS OUT OF PICTURE
Medvedev, also accompanied by Russian billionaire Mikhail
Fridman, whose Alfa-Group owns 40 percent of Vimpelcom, should
have a better chance of ending uncertainty over Djezzy with
Sawiris out of the frame.
Tensions between the Algerian government and the Sawiris
family go back to 2008, when Orascom Construction Industries,
led by Sawiris's brother Nassef, sold its Algerian cement
business to France's Lafarge.
Algeria has fraught ties with its former colonial ruler and
Algiers felt it should have been consulted.
When asked whether Medvedev's trip to Algiers would improve
things for Djezzy, Sawiris said: "Yes, definitely"
"I'm sure he's going to raise the subject and he's going to
try and help improve the circumstances under which Djezzy
operates," he said in a phone interview, adding that the deal
had a 90 percent chance of going through.
Vimpelcom already had offers of financing from Citigroup,
Credit Suisse, Deutsche and UBS, advisers on the transaction,
and four of five other lenders, banking sources said.
The company is looking at a loan of $6-7 billion, part of
which could be taken out with a bond. The debt would cover some
of cash portion of the acquisition and might also refinance
existing facilities, the sources said.
Ratings agency Standard & Poor's placed Orascom on B- with a
positive creditwatch on Wednesday, saying the potential change
of control meant some facilities may need to be refinanced.
The Orascom acquisition marks a major expansion into Asia,
North Africa and the developed European market, for Vimplecom.
A source familiar with the matter said Vimpelcom's offer
already factored in the risks associated with Algeria.
"Djezzy is important, but it is not a condition of the
transaction closing. The package of assets is the attractive
thing for Vimpelcom," the person said.
Russia also wants state-controlled gas giant Gazprom to
increase cooperation with Algeria's Sonatrach and arms sales to
Algeria, Russia's biggest purchaser of arms in 2009, will be
also be discussed, the Kremlin said.
Gazprom Chief Executive Alexei Miller is joining Medvedev tin
Algeria and though the gas giant did not acquire any fresh
acreage in the last oil and gas bid round, it may try to pick up
a concession in a licensing round now underway.
Algeria supplies about a fifth of Europes gas needs and is
the world's eight-biggest oil exporter.
(Additional reporting by Alexander Dziadosz in Cairo, Melissa
Akin in Moscow, Christian Lowe and Alasdair Reilly in London,
Denis Dyomkin in Algiers; writing by Guy Faulconbridge; editing
by Lin Noueihed)