Carson aspersions: TeliaSonera`s Eurasian venture and accounting under scrutiny from “Muddy Waters” Reviewed by Momizat on . US shortseller Muddy Waters has accused Swedish telecom giant TeliaSonera of making corrupt payments that exceed SKr 17 bln (USD 2.1 bln) in parts of its Eurasi US shortseller Muddy Waters has accused Swedish telecom giant TeliaSonera of making corrupt payments that exceed SKr 17 bln (USD 2.1 bln) in parts of its Eurasi Rating: 0

Carson aspersions: TeliaSonera`s Eurasian venture and accounting under scrutiny from “Muddy Waters”

US shortseller Muddy Waters has accused Swedish telecom giant TeliaSonera of making corrupt payments that exceed SKr 17 bln (USD 2.1 bln) in parts of its Eurasian and Nepalese telecoms operations.

It will be recalled that in two earlier articles (link) we examined allegations against TeliaSonera concerning “pay to play” corruption related payments in both its Azerbaijan and Uzbekistan operations.

The Uzbekistan corruption allegations are already the subject of investigation by the US, Dutch and Swedish authorities. Indeed the Swedish company has sought to contain the mounting fallout by announcing on 17 September that it is “not a long-term owner in Region Eurasia” thereby essentially putting a “for sale sign” over this business which has become an increasingly important contributor to its business and results.

This segment accounted for 20.6 percent of Group revenues for 1H 2015 (1H 2014 – 19.1 percent), 33.6 percent of EBITDA (1H 2014 – 30.7 percent), and 36.9 percent of operating income (1H 2014 – 28.2 percent). No timeline or concrete steps have been expressed by management, merely a hopeful expectation that it can “eventually leave the entire region.”

Muddy Waters, founded by Carson Block, has stated “it appears” that TeliaSonera made corrupt payments in Uzbekistan exceeding SKr 3.1 bln but that this is just the tip of the iceberg. It estimates that the Swedish entity could have made corrupt payments throughout its Eurasia and Nepalese operation that exceed SKr 17 bln.

Furthermore, under an arrangement made with a partner in Azerbaijan, it may yet be obliged to make additional payment of up to SKr 7.6 bln if a put option was triggered.

According to Muddy Waters, around 80 percent of the corrupt payments were booked as assets in the balance sheet to avoid dragging down profit margins.

In a letter sent to the board of TeliaSonera it has stated that the Swedish group`s financial statements “are misleading” and “continue to be filed with material misrepresentations and necessary writedowns could reach SKr 20 bln.”

With operating income of SKr 26.8 bln in 2014, the writedown if applied in full would leave the Swedish entity very near to a breakeven/loss position.

But Muddy Waters go further by noting that the actual disposal of the Eurasia business may well lead to their disposal at a value well below both what TeliaSonera and most analysts currently believe. The disposal will also have a major impact on the Swedish entity`s ability to finance the dividend going forward as well as its credit profile by dramatically reducing consolidated free cash flows – Muddy Waters estimate a 33 percent decrease on 2013 figures.

Finally, based on their estimates, Muddy Waters believe the potential fines from the ongoing investigations noted above could “total in the multiple billions of Swedish Krona.”  The application of the US Foreign Corrupt Practices Act might actually lead to TeliaSonera being required to disgorge the past profits derived from corruption  – this may amount to SKr 20 bln alone according to Muddy Waters`s estimate.

TeliaSonera`s share price fell 6 percent on the day of the letter being released. The Swedish giant issued a press statement which noted that it continued to cooperate with relevant authorities on the various corruption cases, had received no formal claims from the US authorities necessitating the need for provisions in its accounts and was sticking with the audited financial statements to date.

The Swedish government, which is a 37-percent shareholder in TeliaSonera, presumably faces a dilemma concerning one of its industrial champions. It, alongside the US and Dutch authorities, is conducting an investigation into a company in which it itself maintains a sizeable investment in and presumably had its own appointees on board when the alleged corruption payments were undertaken. Its own corporate governance model may therefore be under as much scrutiny as the Swedish telecom giant itself.

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