Gentlemen, thank you for standing by. Welcome to the Investor and Analyst Conference Call. During the conference, all participants will be on a listen-only mode. If you wish to ask a question during the Q&A session, you will need to press star one on your telephone keypad. Please be advised that this conference is being recorded today, Wednesday, the 26th of June, 2019. I shall now hand over to Nik Kershaw, Head of Investor Relations. Please go ahead, sir.
Hi. Good afternoon, ladies and gentlemen, thanks very much for dialing into our conference call. Nik Kershaw here, Group Director for Investor Relations. Today, I'm pleased to be joined by Trond Westlie, our Group Chief Financial Officer. As always, we'll ensure that there's time for questions at the end of the presentation when we hand back to the conference call operator. Before getting started, I would just like to remind you that we may make forward-looking statements during today's presentation, which involve certain risks and uncertainties. These statements relate in part to the company's ability to realize its targets and strategic initiatives, including current and future transactions, as well as the achievements of the potential benefits of the transactions described, completion timing, and the receipt of the necessary regulatory approvals.
Certain factors may cause actual results to differ materially from those in the forward-looking statements, including the risks detailed in the company's annual report form on Form 20-F and other recent public filings made by the company with the SEC. This presentation is not an offer to buy or sell, nor a solicitation of an offer to sell or buy securities in any jurisdiction. With that, I'll just hand over to Trond. Thank you.
Thank you very much, Nik, good afternoon, ladies and gentlemen, or morning, or evening, depending on what time zones you're in. We're very satisfied with today's announcements that we're doing on the settlement of the GTH taxes, the approval of our mandatory tender offer on GTH, and also our proposal on the comprehensive restructuring of GTH subsequently. We have worked, as many of you know now, for more than four months to try to get the approval for this MTO. We have worked hard with many of the stakeholders in Egypt, and we like very much to appreciate the approval of this voluntary tender offer by the Egyptian Financial Regulatory Authorities.
We also like to thank the stakeholders we have been discussing with for a long time in Egypt, among others, the Ministry of Finance, as I mentioned, the Financial Regulatory Authority, the Egyptian Exchange, and the Egyptian Tax Authorities. It has been both challenging and demanding discussion for quite some time, but I do think that we have now ended up with a structure that can benefit both Egyptian stakeholders, minority shareholders in GTH, as well as VEON as a majority shareholder. We have a small presentation for you out there, on page three, we have the summary of the benefits to all stakeholders. As you can see on number 1, the GTH and Egyptian Tax Authorities have agreed on a tax settlement of a total amount of $136 million.
That is approximately $61 million more than the provision that GTH had in their books and their estimated likely payments. That is a final settlement of all the years from the year 2000 until the end of 2018. It's a full settlement of all the years in operation, both before the acquisition by VEON and of course up to the latest tax return delivered. These payments will be done in two installments. One of $53.7 million will be paid today, and the remaining part of the settlement, $82.3 million, will be paid no later than 31st of December, at which time GTH shall delist from the Egyptian Exchange. That is, of course, dependent on decisions in the Extraordinary General Assembly in GTH. That is also dependent on the percentage voting for such listing. I will come back to a bit of that.
Second is, of course, the mandatory tender offer has been approved by the Egyptian Financial Regulatory Authority for the purchase of up to 42.3 or just short of 2 billion shares in GTH at the price of EGP 5.08. You will acknowledge that our previous assumption was EGP 5.3. We have adjusted the offer price with the relative value to each shareholder of the $61 million that the liability of GTH increased as a result of the settlement. Number 3 is that VEON, we plan to delist GTH from EGX, either by mandatory delisting or through a voluntary delisting by a special resolution of 75% or more of the shareholders at the GTH Extraordinary General Shareholder Meeting. That Extraordinary General Shareholder Meeting is called by GTH today, and it's preliminary set at 27th of August.
The proposal that we have on the GTH restructuring is that the assets of GTH or the operating assets of GTH, including Algeria, Pakistan, and Bangladesh, are planned to be transferred from GTH to VEON. We have submitted an asset transfer offer to GTH for these assets at a price in line with the mandatory tender offer valuation. Them is the four main points in this structured transaction. If you then go to the next page, the GTH mandatory tender offer, we believe is an attractive exit for the minority shareholders. It's a good premium to the three months average share price prior to the MTO filing, both three and six months.
All in all, we think it's a good price, and we have also taken into then the consideration from our previous announcement of $5.3 to $61 million additional to be paid from GTH to the Egyptian Tax Authority in Egypt. When it comes to the U.S. dollar value of the price as a result of Egyptian pounds having appreciated approximately or just short of 5% since we made the offer, the value in U.S. dollars is approximately the same. We expect the tender offer to start beginning of July. Our estimate is first it might slip a day or two depending on the different filing and the process in Egypt, and it will be open for 25 Egyptian business days. If it starts on the 1st of July, the last day is going to be around 5th of August.
The settlement date is five days after the closing, and GTH will hold an Extraordinary General Meeting to approve the GTH delisting from The Egyptian Exchange or will mandatory delist if VEON's holding is at least 95%. After the completion of the transfer assets, GTH will be left with no operating entities. That you can see on the next slide where we have the simplified ownership structure to the left on the current structure with VEON owning 57.7% of GTH and GTH owning the remaining assets with different percentages. To the right, direct ownership of VEON through to the different countries involved. On page number six, we just believe that we have come after several attempts now further than we have ever done on trying to solve the situation.
We believe that we have come to, after long and also difficult discussion with different stakeholders in Egypt, as well as a good dialogue with some of the minorities in GTH, we believe that we have come to a balanced and the best possible solution for all the different parties, both the Egyptian stakeholders, the minorities, as well as VEON. I do think that even though we're very satisfied and happy that we can announce this today, it's a start of an MTO. It's an end of a start, but we're also starting a process of an MTO and a restructuring of GTH. I do think that from our end, we think that the stars are very aligned as of now, and we do see challenges going forward if we're not going to be successful on this one.
With that, I give the control back to the operator for questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin the Q&A session. If you wish to ask a question, please press star one on your telephone keypad and wait for your name to be announced. If you find your question has already been answered, please press the hash key to remove yourself from the queue. Again, that's star one for any questions. Our first question for today is from Cesar Tiron from Bank of America. Please go ahead.
Yes. Hi. Thanks, everyone. Thanks for the call and thanks for the opportunity to ask questions. I have four questions, apologies for that. The first one, can you please remind us what is the corporate cost or overhead at GTH and what you can extract here? Second, I have actually two questions on the GTH business. Can you please discuss this new incremental taxation risk in Bangladesh? The second question on the GTH business is on the license renewal in Pakistan. What do you expect the price to be, and do you think that we'll be able to find out by mid-July? The last question would be on the attractiveness of the GTH asset and how they sit within the VEON portfolio. Do you think there's any synergy between these assets and the assets which are held at VEON?
Would you be inclined to consider any M&A if you were to receive offers for some of these assets? Thank you.
Well, that was a bit more than a few questions. Let's go back, Cesar, and try to look at them. The overhead cost on GTH is limited. I don't know the exact number of this, but it's not high overhead cost in GTH as such. I don't know the exact number, but it's one-digit dollar numbers, and it's on the low side. It's not high. When it comes to the operational questions, when it comes to Bangladesh and Pakistan, we will give you more update on the operational performance and also the future of the different businesses in our portfolio in a normal update when it comes to the end 1st of October, when we actually present the second quarter.
Coming to that end, when it comes to different cases, whether it is change of taxes or change of fees and license fees in different countries, of course, we are catering for those kind of elements. You know the market knows our position on Pakistan. We are still discussing with the government on how to deal with their request for a high number on the license. We don't know how that's going to end up. It's still a discussion, so I cannot give you the sort of a probability of any of the outcomes there. Bangladesh always changes there after elections and so forth, and we will get more back to you on that.
When it comes to how that implies on the valuation and such, we do not see that this triggers or changes too much of the evaluation because it depends on how you measure the investments in the different countries relative to how you see the price evolvement in the different countries as well. It's a balance act. When it comes to the GTH assets, you all know that there is a shareholder agreement in place in Algeria. Other than that, we have really no comment whether these assets fit more or less into the portfolio. We like the assets. That is why we are willing to give an offer to the GTH minorities.
Thank you so much. Very helpful.
Our next question for today is from Vyacheslav Degtyarev from Goldman Sachs. Please go ahead.
Yes. Thank you very much for the presentation. A couple of questions. Firstly, can you please once again elaborate on the strategic rationale of the GTH consolidation? Basically, what will the restructuring bring to you? Is it more about the easier cash upstream for the holding level, or easier way to carry out any of the corporate restructurings in those countries, like any M&A deals or better operational oversight? If you would prioritize those would be helpful. Second question about any potential implication on the dividends payments that you observe. Thank you.
When it comes to the structural part, I think that it's three elements that drives this. It's of course that it is the upstreaming of cash and the cost of upstreaming with holding taxes and not have to do with holding taxes twice relative to go through intermediate countries that actually drives that. That's one. It costs less for upstreaming. Two is, of course, the funding structures in the structures so that it's easier for us to wipe out the intermediate debt structure sitting in GTH, as well as maybe optimize the debt structures in the operating countries. Three is, of course, structural flexibility when it comes to opportunities, because we do not then need to actually have different kinds of minorities more than needed in the feasibility and the dynamic of structural changes.
That's the three main elements in focusing on this structure or simplifying the structure. When it comes to the dividend, the cash outlay, if we're 100% successful, is just above $600 million. The cost of that is not going to be significant on our total cash flow. I do not foresee this instance as sort of an element of significance when it comes to the continuation of dividend.
Okay, thank you very much. Just a follow-up, can you somehow numerically assess the cost of upstreaming savings, if you can comment?
No, I cannot give you that offhand. You need to contact IR if you have any details on that. I don't have that in the top of my head.
Okay. Thank you very much.
Our next question for today is from Rahul Bhatt from JP Morgan. Please go ahead.
Hi. Hi. Thank you for the call. I have a couple of questions as well. Can I ask if, after this, assuming the asset transfer is also complete, what do you plan to do with the debt that remains at the GTH level? Secondly, the tax payment, the second portion of the tax payment, is it right to understand that that is conditional upon you being able to delist? That is, if for some reason you don't get the required amount of the mandatory tender offer and you are not able to delist, then the tax deal is off the table. Is that kind of understanding right?
Not quite, but it is dependent. 100% conditional it is not, because it's dependent on different things. There I cannot really go into the details because as of now, I can only comment on what is publicly announced and not what's more in the actual prospectus, and as because of the rules in Egypt. As a result of that, we need to go. There are dependencies, but there are also some exceptions to it. We are comfortable that they are linked enough to be able to delist.
Understood. In terms of the debt on the GTH structure?
Sorry. We have not decided on how that should be structured going forward. Of course, we also have a guarantee, and we also have the opportunity to assume the debt anyway. We will have to look at the optimizing structure, and that's why I mentioned it on my previous answer, that part of the element is, of course, the funding structure and how we can fund the three assets, which is then going to be simpler as a result of not having GTH in between. We not decided yet. We have to come back on.
Understood. Just, sorry, lastly, on the cash level on the balance sheet, there's about $1.2 billion in cash. Is that comfortable amount of cash that you want to keep on the balance sheet, or you think there is some excess cash in that that you think you can utilize for repaying debt or anything else?
Well, we have to be careful on the cash position. I think that's a bit high on the cash position because remember on the first quarter, even though we had a deposit somewhere, that deposit was $645 million on this transaction. We took up debt, and then we had a deposit there. The likelihood of having $1.2 billion of cash sitting around is not where we need to be. For more details on that, we have to come back to you or come back to you at the second quarter presentation.
Okay. Okay, perfect. Thank you.
Thank you very much. As a reminder, it's star one if you have any questions. The next question is from Ivan Kim from Xtellus Capital. Please go ahead.
Yes, good afternoon. Two questions from me, please. Firstly, will VEON be allowed to vote on delisting?
The element is on the delisting on the 75% and on the mandatory or the voluntary, we will be allowed to vote, as I believe it. On the restructuring itself or on the offer that we have given GTH on selling the assets to VEON will of course be dependent that delisting has happened, because before delisting, we are of course not allowed to vote on that transaction. We can do a conditional vote pending the delisting.
Okay, sorry. I just want to clear up so that I understand it correctly. If you delist.
That's-
If you delist, you can vote on this after that on the asset sale.
If we delist. That's correct. Before we delist, we can vote on it, but then the transaction will be conditioned to a delisting.
Sure. That's technicality. Basically, if you delist, you can vote. Okay. The second question is on the shareholder agreement at Jazz. Can you refresh us on what it means exactly? Thank you.
Well, on the shareholder agreement with Jazz, there is a put call arrangement in 2021, I believe, from July until October-ish or something like that. It's sort of mid 2021, there's a put call arrangement opportunity for both parties.
On the valuation which will be defined by the independent appraiser or?
That's correct.
Okay. Thank you very much.
Thank you very much. Our next question is from Alexander Vengranovich from Renaissance Capital. Please go ahead.
Yes, hi. I have a follow-up question on the debt, especially on the debt of GTH, which matures this year. Looking at their presentation, they have around $870 million of outstanding debt, which matures this year. Before the transaction and before the restructuring happens, should we assume that this debt will be on the standstill and they're not going to make any decisions regarding their maturity of this debt? Or how should we look about it? Just please maybe clarify regarding the structure of the debt and what is internal and what is external also. That could be helpful. Thank you.
Well, if my memory serves me right, I believe that we need to clarify the numbers you're mentioning, for the $800 maturing this year is a number we don't recognize at all. I do think that the $1.6 billion of bond have a bullet maturity, and it's guaranteed by us at that point in time. I'm not sure about the date of that maturity. The remaining part, I believe, is about $300-ish level, and that is a receivable or payable to VEON. The remaining part is more interest payments. The $800 of maturity during this year, I think is, at least in my recollection, some element of misunderstanding. I cannot give you the exact details as of now, but I think in general what I said is correct. No maturity, external maturity, except for the VEON maturity during this year.
Of course, there are interest to be paid on a running basis.
Yeah. I was just referring to their presentation on GTH, which they made at the end of the first quarter 2019. There's a special slide of the debt maturity profile. Maybe there is some misunderstanding, but okay, of course.
Yeah.
Anyway
We can get back to you on the $870 part on the GTH element.
Okay, thank you.
Our next question is from Herve Drouet from HSBC. Please go ahead.
Yes, good afternoon. Thank you for the presentations. Two questions as well on my side. Firstly, in terms of the agreement you have with the Algerian authority on Djezzy in the future, I was wondering, the current agreement, is it with GTH holding legally? If it is the case, if you do the minority buyout and you simplify the structure, do you need to do an amendment in terms of how the legal representation and could it affect these potential put call arrangement you have on Djezzy? That's the first question. Second question is on the debt structure. I understand you are looking at the different options to optimize the debt structure, but I would like to see your view in terms of what you feel from your perspective will make more sense.
Do you think, in terms of debt, is it better to have the debt at the operational level and in local currency or do you believe it's better to get a part of the debt at the VEON holding level? Thank you.
Well, when it comes to the shareholder agreement in Algeria, as long as VEON stays as a majority shareholder of this, it's not going to be any changes. When it is the debt structure, we do believe that we should allocate as much as we can on a relative basis to our opcos when it comes to currency as a result of the hedging positions as we see it. That is, of course, depending on the opportunities or the possibilities of actually doing it in country and some of our countries offshore market is limited. As a result of that is why on an overall basis, we have a good structured hedging when it comes to ruble and ruble correlated currencies.
On the other currencies, some of our countries, either due to the fact of domestic structural issues, meaning lack of reserves or possibilities of putting debt down, that is limited. We do see that as a goal to have a relative spread of currencies on our debt as much as possible.
All right. Thank you.
As a reminder, it's star one if you have any questions. The next question is from Igor Goncharov from Gazprombank. Please go ahead.
Yes, thank you very much. Couple of questions from my side. One is on the listing board, basically on switching from mandatory buyout to the listing. At which level of ownership after the mandatory buyout you will consider the buyout successful and you will move to the delisting? Clearly, you're saying if this is 95%, you will move to the obligatory delisting, at which level I would say you would not do delisting? That's question number one. Question number two, with regards to delisting procedure, if you move to delisting, would the delisting procedure involve another round of buying out the remaining minorities of GTH who did not tender the shares to the tender offer, or would it not require any additional cash spending by GTH? Thank you.
When it comes to our approach on the delisting is that we would like to delist GTH as soon as possible. The voluntary level that general assembly or general meeting in Egypt can vote on that needs a 75% shareholder majority to delist. If VEON comes up to a 95% ownership, it will be a mandatory delisting, the system will make that. We are moving towards this solution, and we'll try to get either a voluntary listing or a mandatory delisting as soon as possible. That, of course, depends on the success of the MTO. We need to get at least 75% of the votes to be able to vote on the delisting.
On the rules of squeeze-out rules, there are no squeeze-out rules in the Egyptian legislation, but there is, as I understand, an opportunity for when the decision of delisting is done, there is 3 levels or mechanism of setting the price. There is an opportunity for the shareholders in GTH to place the remaining shares they have with GTH, I believe, at the point of the decision for delisting. That means that the minorities still remaining in GTH after the MTO, and when the delisting decision is done on the Extraordinary General Meeting at the 27th of August or at the point of delisting, that I need to clarify, I am not quite sure as I sit here right now. At that point, the remaining shareholders in GTH have the opportunity at a certain point to place those shares with GTH.
I don't have the exact time limits and dates for that now.
Okay. Thank you very much. Just to clarify on the first question on B, basically, I was wondering at which point you would consider MTO as successful, as you mentioned it in your press release. Suppose you do not hypothetically collect 75%, you, let's say, end up with something around 70, for the sake of example. Even with 70%, theoretically, you can collect 75% of the votes in the shareholder meeting. Would you be still holding the shareholder meeting, the delisting voting at this stage? Or alternatively, if you do not have 75, you would just not move to the voting stage?
That's too hypothetical. Actually, we have come today with a very good offer to the minorities. We have worked hard to find a structured solution that could fit both the all our Egyptian stakeholders ourselves, and in addition to that, giving the minority a good offer. Coming to that situation, I don't think that we have put many thoughts into that kind of technical, tactical considerations. We have to get back to that if and when that situation arises.
Okay. Thank you very much.
Our last question for today is from Alistair Jones from New Street. Please go ahead.
Yeah, hi. Just one question from me to wrap up. One of the things you indicate on slide eight is potential tax payments upon the transfer on the asset transfer offer. I was wondering if you can clarify what that may be, what it relates to, and what sort of values we should be looking at there. Thanks.
Well, we do not expect, contemplating that the transaction is happening during 2019, we do not expect any significant taxes coming out of this transaction. The reason for that is GTH have been administered and driven by an administration sitting in the Netherlands, and according to the Egyptian tax treaty with the Netherlands, that leaves it under Dutch tax jurisdiction. As a result of that, we do not contemplate any significant taxes coming out of that transaction.
All right. Thank you.
Thank you very much. There are no further questions.
Thank you very much. The mandatory tender offer or the tender offer itself is going to be published within the coming days. If you have any questions coming out of that or any follow-up questions, please contact our investor relations department. Of course, at the end, I would like to welcome Nik Kershaw for Head of the IR, and this was your first time out, and I'm sure that your efforts going forward will be as successful as today. Thank you, everyone.
Thanks very much, everyone.
Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect your lines.