Sawiris’ Orascom says North Korean venture Koryolink talks hit the buffers

Egypt-based Orascom Teleccom OTMT, which is owned by business tycoon Naguib Sawiris, announced Thursday it had failed to reach any agreements with North Korea over its assets in the North Korean venture Koryolink.

Sawiris, chief executive of both Orascom and the North Korean, venture built in late 2008 a highly profitable mobile phone business with around 3 million customers in the isolated nation, as cellphones became popular with wealthier North Koreans and the state eased restrictions on communications. The business earned around $270 million before taxes and depreciation on $344 million in revenue in 2014.

However, in the last few years, a state-run competitor emerged in North Korea, and Orascom hit problems trying to repatriate profits. Orascom said in a November filing in Egypt it had lost control of its 75 percent-owned North Korean venture, Koryolink, and struck the venture from its balance sheet, removing hundreds of millions of dollars in assets.

Sawiris said earlier this year that his company was trying to negotiate a solution. “We are still hopeful that we will be able to resolve all pending issues to continue this successful journey,” he said in a statement accompanying the filing.

OTMT said Koryolink’s assets, which the company said were worth $832 million at the end of June, including cash in North Korean won worth $653 million at the official exchange rate.

Koryolink, which now accounts for 85 percent of Orascom’s revenue and profit, announced earlier this year it had not been able to send any funds out of North Korea in 2015 due to local currency controls and international sanctions targeting Pyongyang’s nuclear weapons programme.

In 2015, North Korea decided to nationalize Koryolink by setting up a competitor, Byol, which would then merge with Koryolink. Byol is set to own a majority of the shares in Koryolink, effectively handing over control of the company’s operations to North Korea, according to a report published a year ago by Washington Post newspaper.

Ahead of the report, OTMT had decided to deconsolidate Koryolink, making it an associate instead of a subsidiary. The Washington Post reported that this came not only after the steps taken to nationalize Koryolink, but after the company has found itself hundreds of millions short of the profit it earned. As a result of the government’s regulations on foreign exchange rates, OTMT’s Koryolink has reportedly made a profit of $US 8 million instead of $US 540 million.