Kyrgyzstan Attempts Selling Its Troubled Telecom Company. Again.

A week ago the State Property Management Fund of Kyrgyzstan announced one more auction round to find a willing investor for the nationalized shares of its major mobile operator, MegaCom.

It is not the first attempt by the Kyrgyz Government to sell MegaCom: two earlier auctions in 2016 failed for complete lack of investors. Now the Government has reduced the asking price by a quarter and wants to try again.

MegaCom cell network (run by a local Kyrgyz corporation called Alfa Telecom) is a very peculiar asset. What makes it so special is that its entire 10 years-plus history was soaked in controversy and corruption.

Founded in 2005 just before the ‘Tulip Revolution’ (which brought down the cleptocratic regime of Askar Akayev), MegaCom network was originally owned by BiMoCom LLC, a Kyrgyz entity controlled by persons close to Leonid Reiman, ex-Minister of Telecommunications of Russia. Reiman is no stranger to controversy: his no-holds-barred feud with a Russian oligarch group in 2005-2006 brought to light judicial revelations of his corrupt practices. His offshore holding arm, IPOC was later liquidated by the Bermuda authorities as a conduit for money laundering. The website of the UN and World Bank-sponsored Stolen Asset Recovery Initiative (STAR) still lists the tracing and recovery of Reiman’s assets as an active project, giving full details of the charges against Reiman.

Under the newly inaugurated Kyrgyz president, Kurmanbek Bakiev, MegaCom was first subjected to regulatory and law enforcement pressure, but then began developing very successfully – exactly after an offshore company controlled by President Bakiev’s son Maksim (a Hong Kong registered Forntek Enterprises Ltd.) was allocated a 49% share in BiMoCom LLC – the company which owned the mobile operator.

The happy partnership between Russian and Kyrgyz corrupt interests lasted till 2009 when Bakiev’s lawyers unexpectedly sued Reiman’s offshore nominees in Kyrgyz courts, relying on a technicality in the shareholders agreement governing their BiMoCom participations, and took over the entire company.

The Russian side mounted a defense, but to no avail. Kyrgyz courts firmly established that Bakiev’s offshore company was now the only true owner of the mobile network.

To make eventual return of the Russian share in MegaCom impossible, Maksim Bakiev’s lawyers engineered a series of transactions to resell the assets of BiMoCom (including the MegaCom brand, equipment and customer base) to a newly formed company, Alfa Telecom. BiMoCom was then forced into bankruptcy.

Alfa Telecom was hastily incorporated in 2009 by Aleksei Eliseev, a trusted lawyer and confidant of Maksim Bakiev. Shortly after incorporation it got a full set of telecom licenses needed to run a mobile network and purchased (with some ingenious financial engineering) the assets of BiMoCom. It remains the operator of MegaCom network to this date, and it is the shares in Alfa Telecom that the Kyrgyz Government is now trying to sell.

Shortly after Alfa Telecom’s incorporation, Eliseev transferred his shares to two offshore entities – Belize-registered Southfield Management Inc. (99%) and a New Zealand company called Vesatel United (1%).

The brazen takeover of MegaCom would have remained unchallenged if not for the second revolution which hit Kyrgyzstan in April 2010. Following several days of disorder and marauding, an interim government was formed. To no surprise, among its first visitors were emissaries of aggrieved ex-owners of BiMoCom.

Whatever personal chemistry developed between Reiman’s friends and the new Kyrgyz government, the result of their negotiations was nationalization of 49% in Alfa Telecom by Kyrgyzstan and appointment of Reiman-friendly managers to run the company. 51% remained booked with Bakiev-linked Southfield Management and Vesatel, but their lawyers were crudely barred from any proceedings and attempts to assert their rights.

To get the whole of the MegaCom network back, Reiman’s people had to overturn a multitude of pro-Bakiev court decisions, restore their shares in BiMoCom, resurrect it from bankruptcy and then get all of the MegaCom assets returned from Alfa Telecom to BiMoCom. By no means an easy task.

The way Russian managers tackled this task was later described in graphic detail by a whistleblower – Mrs. Raushan Rykunova who at first worked in the BiMoCom camp but was later sacked and criminally charged for alleged improprieties. She remains in prison today. While being investigated, Rykunova revealed that the Russians spent over 5 million dollars bribing Kyrgyz officials left and right: judges, prosecution officers, registration officials and the like. Several bureaucrats named by this woman stood down, but no investigation was opened to save the country from a uniquely huge embarrassment.

Some details of the dealings of the ‘revolution government’ and the Russians kept becoming public after Rykunova’s revelations: ex-deputy of the Kyrgyz Parliament Omurbek Abdrakhmanov in his November 2012 interview revealed that the Russians paid 1 million dollars for political support of their quest for assets to Omurbek Tekebayev, an important member of the Interim Government in 2010 and the author of the country’s new post-revolution Constitution.

However, regardless of all the money showered by corrupt Russians on corrupt Kyrgyz law enforcement and judiciary, in 2012 the Russians’ effort to take back the entire MegaCom shareholding surprisingly ground to a halt.

The likely reason for that was that the people behind Southfield and Vesatel finally established contact with the new Kyrgyz authorities and got them interested in a scenario where MegaCom assets would stay with Alfa Telecom, while Bakiev-linked Southfield and Vesatel would keep some part of their remaining share in Alfa Telecom.

As Panama / Offshore leaks and other offshore disclosures are bringing more and more facts to public attention now, some details of the likely deal between Maksim Bakiev’s interests and the new Kyrgyz officials are emerging. Several compliance-focused databases (for example, see here ) are listing Mr. Omurbek Tekebayev (an important figure in the Kyrgyz Parliament), Mrs. Aida Salyanova (Prosecutor General of Kyrgyzstan from 2010 to 2015) and Mr. Shykmamatov Almambet (Minister of Justice from December 2011 to February 2015) as minority shareholders in Southfield Management Inc. starting from April 2012. It was exactly at that time that Reiman’s efforts to force his will through Kyrgyz courts were unexpectedly deflated.

At the same time official preparations started to sell the nationalized (49%) share in Alfa Telecom through an auction which – if it happened – would legitimize the remaining 51% holding in the hands of Southfield.

The Kyrgyz President Mr. Almaz Atambayev (who, as many agree, is a politician unique in his disgust for corruption) must have smelled rat from what was happening behind the scenes in Reiman-Bakiev bureaucratic battles, because in January 2014 in a surprising move he cancelled the auction for 49% and forced the confiscation of the remaining 51% from Southfield and Vesatel (as proceeds of crime) when the criminal sentense was issued in absentia to one of Bakiev’s associates.

The auction was then announced for the entire 100% in Alfa Telecom. In May 2016 it was postponed for the lack of applications, then postponed again, then cancelled. The second attempt to auction MegaCom is being made now.

It remains to be seen if any applicants show up to bid for MegaCom. From the legal perspective, the asset looks clean: by confiscation, the Government severed the corrupt trail of its ownership. However, the fascinating memories of how one corrupt official stole the company from another and then had to corrupt the new generation of corrupt politicians to defend its corrupt interests from the original corrupt owner, will haunt the company forever.