Vodacom's Congo Dispute Goes to Arbitration

Mergers, Acquisitions and Financial Results

A bitter quarrel between Vodacom and Congolese Wireless Network (CWN) over the future of their joint venture in the Democratic Republic of Congo is heading for arbitration in Brussels after the two companies failed to resolve several areas of disagreement including a $484m capital injection and the possible liquidation of the venture (Vodacom Congo).

Despite Vodacom Congo's poor performance in the past few years and its minuscule contribution to Vodacom's total earnings, if the business closes, it will be a setback for Vodacom's plans to be a significant player in the continent, which is dominated by local rival MTN.

CWN chairman Alieu Conteh said after the meeting that Vodacom "seems to have closed the door" to a solution. "As CWN, we have to fight to protect our rights," he said, adding that the dispute negatively affected operations.

The arbitration proceedings will be lodged under International Chamber of Commerce rules in Brussels with immediate effect, Bob Collymore, Vodacom Group's spokesman, said.

"Vodacom firmly believes in the potential of the business in the Congo. We stand ready to fund further expansion and are hopeful that the arbitration will bring a positive result," he said.

The relationship between Vodacom Group, which owns 51% in Vodacom Congo, and CWN has been strained for some time.

More than two years ago the partners failed to amend the original joint venture agreement signed in 2001. The amendments would have included how funding for Vodacom Congo will be raised. The original agreement included that any shareholder unable to meet capital calls to raise funds could be diluted either through the sale of shares to the other or to a third party.

Conflict between Vodacom Group and CWN deepened in the past few months after Vodacom proposed a capital injection of 484m, which would have diluted CWN's shares in Vodacom Congo. CWN refused the injection and accused Vodacom of fraud and abuse of trust, mainly over a loan that allegedly resulted in CWN incurring inflated interest and fees. CWN demanded that Vodacom pay back more than 166m in interest and fees paid to it by Vodacom Congo. Vodacom Congo's losses to date are 230m.

Collymore said Vodacom "has thus far provided all the funding for Vodacom Congo at commercial rates that were explicitly agreed" to by CWN.

CWN proposed a liquidation or sell-off to a third party of Vodacom Congo, which Vodacom rejected.

Conteh wants a forensic audit to determine the root of Vodacom Congo's financial problems since Vodacom took over the management in 2001.

"We are not opposed to the capital injection, but want a forensic audit done first. Then we will decide whether to inject the money," he said.

Business Day