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The government is examining a deal in which an Egyptian telecommunications company has bought an indirect stake in Partner Communications, the operator of the Orange mobile telephone network and one of Israel's biggest companies.
Orascom Telecom said late Wednesday it acquired a 19.3% stake in Hong Kong- based Hutchison Telecommunications International, the owner of 52% of Partner. Orascom paid $1.3 billion to Hutchison Whampoa for the stake and has an option to buy another 3.7% within a year.
With completion of the first part of the deal, Orascom, which is not state-owned, has acquired an indirect holding of just under 10% in Partner, cutting Whampoa's stake in its telecom unit to 49.8%. Orascom has the right of first refusal if Whampoa decides to sell a stake of more than 10% in Hutchison Telecom.
A telecommunications ministry spokesman said on Thursday that various government departments are assessing the deal from a legal point of view, but declined to give further details. A source said intelligence agencies are involved in the examinations.
The transaction may raise security concerns in Israel because of the size of the interest Orascom has gained in Partner. Also, Orascom chairman and chief executive Naguib Sawiris and senior executive Aldo Mareuse have joined Hutchison Telecom's board. Furthermore, in addition to its activities in Egypt, Orascom operates in Pakistan, Bangladesh and Algeria, none of whom have official diplomatic relations with Israel.
In April, Prime Minister Ariel Sharon prevented France Telecom from joining one of the consortia that took part in the tender for the privatization of Bezeq after receiving advice from the Shin Bet. The security agency was against France Telecom's participation, even though it would only have acquired a 2% stake, because of its holdings in Jordanian and Egyptian telephone companies and its interests in Algeria. There were also concerns that Israel's communications system would be susceptible to being taken over by hostile agencies.
On the one hand, Orange's network is smaller than Bezeq's, which owns Pelephone and much of Israel's fixed-line infrastructure. On the other, Orascom's indirect holding in Partner is five times bigger than the stake France Telecom would have acquired.
One press report said that under Partner's licensing agreement, the government can step in to prevent a particular company from acquiring a holding of 10% and above in the telecom operator, although neither the Communications Ministry nor Partner could confirm this.
Hutchison Telecom doesn't believe the Orascom deal should cause any problems with the Israeli government.
"Orascom's investment is a minority stake in Hutchison Telecom, not in Partner, and has been made in compliance with applicable rules," Hutchison Telecom told The Jerusalem Post.
Last week, Finance Minister Ehud Olmert met Hutchison Telecom Group Director Fok Kin-ning in Hong Kong, although the company and the government wouldn't say whether they discussed the Orascom deal.
Excellence Nessuah senior analyst Richard Gussow said it was interesting that Orascom and Hutchison structured the transaction so that the Egyptian company's stake in Partner was just under 10%.
"Nineteen point three percent is an unusual percentage and it just so happens that it comes out so that Orascom has a 9.997% stake in Partner," he said.
At this stage, it is unclear what action the government can take if it wants to prevent Orascom from holding a stake in Partner, regardless of the size. It is a situation the markets are wary about, said Gussow.
"The potential problem is if Hutchison is forced to sell its Partner shares. If it sells them on the Tel Aviv Stock Exchange there will be an oversupply of shares, which would push the price down."
Nonetheless, traders didn't appear to be overly worried on Thursday as shares closed little changed at NIS 38.97.
Concerns about control of Partner may prove to be academic, as Hutchison has been looking to sell its stake in the company and, at the end of October, Hot shareholder Matav-Cable Systems Media said it was in negotiations to buy a controlling stake in the telecom operator.