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28 Aug 2003

Merger of VimpelCom and VimpelCom-Region

Alfa Group accelerates third tranche of investment of $58.52 million in VimpelCom-Region

Moscow, and New York (August 28, 2003) - Open Joint Stock Company "Vimpel-Communications" ("VimpelCom" or the "Company") (NYSE: VIP) today announced that its Board of Directors has recommended to its shareholders to approve the merger of VimpelCom and VimpelCom-Region ("VimpelCom-R") and the related issuance of new VimpelCom common shares in exchange for the 44.7% stake in its subsidiary Open Joint Stock Company "VimpelCom-Region" ("VimpelCom-R") that is currently owned by Eco Telecom Limited, a company within the Alfa Group of companies in Russia ("Alfa Group"), and by Telenor East Invest AS ("Telenor"). These issues will be submitted for shareholder approval at an Extraordinary General Meeting of Shareholders of VimpelCom to be held in Moscow on October 24, 2003.

The original VimpelCom-R shareholders agreement, signed by VimpelCom, Alfa Group, Telenor and VimpelCom-R on May 30, 2001, and amended on May 15, 2002, envisaged that a merger of VimpelCom and VimpelCom-R would automatically be triggered by December 2007 if certain operating parameters and other conditions were met. It also provided for an acceleration of the merger process upon the agreement of the VimpelCom-R shareholders. Against this background, VimpelCom is now requesting shareholder approval for the issuance of 10,948,821 new common shares (the equivalent of 14,598,428 ADSs) to Alfa Group and Telenor in exchange for their shareholdings in VimpelCom-R in connection with the statutory merger of VimpelCom-R into VimpelCom. On a fully diluted basis, this represents a 21.4% economic dilution for VimpelCom shareholders. The proposed exchange of shares reflects a valuation ratio of 0.91:1 between VimpelCom-R and the rest of VimpelCom (predominantly VimpelCom's Moscow business), implying that 33.6% of VimpelCom's market capitalization is attributable to its 55.3% stake in VimpelCom-R.

Commenting upon today's announcement, Jo Lunder, Chief Executive Officer of VimpelCom, said, "When we entered into the agreements relating to VimpelCom-R in 2001, the risks that we faced in the regions were significant. It was our objective to hedge our risk by sourcing external equity capital from Alfa Group and Telenor to develop the regions. Today, the risk profile is much improved. Our regional operations are developing well and are now making a positive contribution to net income. As of today, our regional subscriber base is approximately 3.7 million, and VimpelCom-R reported for the second quarter of 2003 a positive net income, EBITDA of $33.2 million and an EBITDA margin of 36.2%, far ahead of our expectations. Moreover, we believe that we will achieve further significant growth in subscribers and profitability in the regions over the medium term. While the existing VimpelCom-R structure has served us well over the past two years, we now believe that there are significant advantages and benefits to be gained from simplifying the group's overall corporate and capital structure and at the same time offering all of our shareholders full exposure to the growth potential in the regions."

Under the terms of the proposed merger, in exchange for their shares of VimpelCom-R, Telenor will receive 3,648,141 newly-issued VimpelCom common shares (the equivalent of 4,864,188 new ADSs) and Alfa Group will receive 7,300,680 newly-issued VimpelCom common shares (the equivalent of 9,734,240 new ADSs). Following the merger, Telenor will own approximately 26.6% and 29.9%, respectively, and Alfa Group will own approximately 32.9% and 24.5%, respectively, of the Company's total voting stock and total common stock.

In anticipation of the announced merger between VimpelCom and VimpelCom-R, Alfa Group has accelerated the third tranche of its investment into VimpelCom-R in the amount of $58.52 million which was originally scheduled for November 2003. The closing of this investment was completed on August 27, 2003.

The VimpelCom Board of Directors has received an opinion from UBS Limited, the Company's financial advisor, on the fairness of the financial terms of the proposed transactions, subject to assumptions and considerations therein.

The merger of VimpelCom and VimpelCom-R with the resulting issuance of new shares in VimpelCom to Alfa Group and Telenor, together with certain other aspects of the proposed transactions, will be subject to approval by VimpelCom shareholders at an Extraordinary General Meeting of Shareholders to be held in Moscow on October 24, 2003. As interested parties to a number of the proposed transactions, Alfa Group and/or Telenor will not be eligible to vote on certain resolutions. In addition, the proposed transactions will be subject to various Russian regulatory approvals, including the Ministry for Anti-Monopoly Policy of the Russian Federation and the Russian Federal Commission on the Securities Markets, and satisfaction of certain other conditions precedent. The Board of Directors is recommending the transaction for approval by VimpelCom's shareholders at the forthcoming Extraordinary General Meeting of Shareholders.

VimpelCom will submit a copy of the materials for the Extraordinary General Meeting of Shareholders, which describes the transaction in greater detail, to the U.S. Securities and Exchange Commission and the New York Stock Exchange. 

The Company's management will discuss its second quarter 2003 results and the merger proposals on a conference call on August 28, 2003 at 6:30 pm Moscow time (10:30 am EDT in New York). The call may be accessed via webcast at the following URL address http://www.vimpelcom.com. The conference call replay and the webcast will be available through September 5, 2003 and September 29, 2003, respectively. A Company presentation will be posted on VimpelCom's website http://www.vimpelcom.com.

VimpelCom is a leading provider of telecommunications services in Russia, operating under the "Bee Line" brand, which is one of the most recognized brand names in Russia. The VimpelCom Group's license portfolio covers approximately 92% of Russia's population (134 million people), including the City of Moscow, the Moscow Region and the City of St. Petersburg. VimpelCom was the first Russian company to list its shares on the New York Stock Exchange ("NYSE"). VimpelCom's ADSs are listed on the NYSE under the symbol "VIP". VimpelCom's convertible notes are listed on the NYSE under the symbol "VIP 05".

The Alfa Group of companies was established in Russia in 1988 and has evolved today into one of Russia's largest financial industrial groups. Alfa Group Consortium is active in the banking, insurance, telecommunications, asset management, oil, gas and other primary commodities, food and retail sectors. Alfa Eco is the group's main trading and industrial arm with interests in oil, metals, mining, telecommunications, foodstuffs and beverages. Alfa Bank is the largest privately-owned bank in Russia with an extensive nationwide network of more than 70 branches, and subsidiaries in Ukraine, Kazakhstan, the United Kingdom, the United States and the Netherlands. Alfa Bank holds a strategic stake in Golden Telecom (NASDAQ: GLDN), a provider of integrated telecommunications services throughout Russia and other countries of the Commonwealth of Independent States.

Telenor ASA, headquartered in Oslo, Norway, is an international provider of high quality telecommunications, data and media communication services. Telenor Mobile - the mobile business area of Telenor - is one of the world's most advanced mobile holding companies with a leading position in the Norwegian market and with ownership in 12 mobile operations throughout the world. The number of mobile subscribers as of June 30, 2003 was 13.6 million (pro rata), calculated on the basis of Telenor Mobile's ownership interests in each company and 28.8 million in total for all the companies in the Telenor Mobile portfolio. Telenor is listed on the Oslo Stock Exchange (TEL) and on NASDAQ in New York (TELN).

This press release contains "forward-looking statements", as the phrase is defined in Section 27A of the Securities Act and Section 21E of the Exchange Act. These statements relate, in part, to the consummation of the merger and related transactions which are subject to shareholder, regulatory and certain other approvals, as well as certain other conditions precedent, including the transfer of all of VimpelCom-R's licenses and permissions to VimpelCom. If any of the approvals are not obtained or any condition precedent is not met, the merger will not be consummated. The forward-looking statements relate to the Company's development and are based on management's best assessment of the Company's ability to consummate the merger and related transactions, its strategic and financial position and future market conditions and trends. These discussions involve risks and uncertainties. The actual outcome may differ materially from these statements as a result of unforeseen developments from regulatory authorities, competition, governmental regulations of the wireless telecommunications industry, general political uncertainties in Russia and general economic developments in Russia and other factors. As a result of such risks and uncertainties, there can be no assurance that the merger will be consummated. Certain factors that could cause actual results to differ materially from those discussed in any forward-looking statements include the risks described in the Company's Annual Report on Form 20-F for the year ended December 31, 2002 and other public filings made by the Company with the United States Securities and Exchange Commission, which risk factors are incorporated herein by reference. VimpelCom disclaims any obligation to update developments of these risk factors or to announce publicly any revision to any of the forward-looking statements contained in this release, or to make corrections to reflect future events or developments.

For more information, please contact:

Valery Goldin
VimpelCom (Moscow)
Tel: 7(095) 974-5888
vgoldin@vimpelcom.com

Christopher Mittendorf
Edelman Financial Worldwide
Tel: 1(212) 704-8134
christopher.mittendorf@edelman.com

 

- Tables attached -

Open Joint Stock Company "VimpelCom - Region"
Unaudited Condensed Consolidated Statements of Income

  Three months ended
June 30,
Six months ended
June 30,
2003 2002 2003 2002
(In thousands of US dollars)
Operating revenues:  
  Service revenues and connection fees US$83,212 US$10,006 US$139,114 US$15,444
Sales of handsets and accessories 7,700 3,367 16,423 5,398
Other revenues 892 153 1,427 176
Total operating revenues 91,804 13,526 156,964 21,018
  Less revenue based taxes - (148) - (236)
Net operating revenues 91,804 13,378 156,964 20,782
 
Operating expenses:  
  Service costs 17,665 2,556 33,257 4,966
Cost of handsets and accessories sold 6,929 3,507 15,425 5,475
Equipment lease 2,233 - 4,454 -
Selling, general and administrative expenses 28,884 7,576 50,173 13,389
Network maintenance 2,296 985 4,107 2,115
Depreciation and amortization 14,161 2,121 25,471 3,186
Provision for doubtful accounts 554 48 915 (1)
Total operating expenses 72,722 16,793 133,802 29,130
 
Operating income (loss) 19,082 (3,415) 23,162 (8,348)
 
Other income and expenses:  
 
  Interest income 239 - 391 241
Interest expense (5,925) (703) (9,231) (1,117)
Net foreign exchange gain (loss) 369 (2,479) 77 (3,101)
Other (expenses) income (257) 25 (222) 42
Total other income and expenses (5,574) (3,157) (8,985) (3,935)
 
Income (loss) before income taxes and minority interest 13,508 (6,572) 14,177 (12,283)
 
Income taxes (expense) benefit (4,573) 229 (5,946) 238
Minority interest in net earnings of subsidiaries (286) (10) (305) -
 
Net income (loss) US$8,649*) US$(6,353) US$7,926 US$(12,045)
 
*) Net income of VimpelCom-R as a legal entity differs from the $9.025 million net income for the regional segment reported in VimpelCom's second quarter 2003 earnings release. The difference is caused by the contribution from BeeLine-Samara which operates in the Samara region but, for historical reasons, is owned by VimpelCom (and therefore is not reflected in the VimpelCom-R financials). The following table provides reconciliation between the two figures (all numbers are in thousands of US$ and relate to the second quarter of 2003):
  Net income of VimpelCom-R 8,649
Net income of BeeLine-Samara 740
Net effect of transactions between VimpelCom-R and BeeLine-Samara (364)
Net income of VimpelCom's regional segment 9,025

 

Open Joint Stock Company "VimpelCom - Region"
Unaudited Consolidated Condensed Balance Sheet
 
  June 30,
2003
December 31,
2002
(In thousand US dollars)
Assets  
Current assets:
  Cash and cash equivalents US$28,640 US$52,703
Trade accounts receivable 5,749 2,768
Other current assets 109,626 68,348
Total current assets 144,015 123,819
 
Non-current assets:
  Property and equipment, net 470,746 277,480
Other intangible assets, net 13,921 10,780
 
Telecommunication licenses and allocation of frequencies, net 94,634 72,322
Other assets 30,371 22,975
Total non-current assets 609,672 383,557
 
Total assets US$753,687 US$507,376
 
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable US$32,569 US$20,523
Due to related parties 60,297 25,157
Customer deposits and advances 15,937 14,046
Deferred revenue 661 699
Ruble denominated bonds payable 98,852 -
Bank loans, current portion 911 1,157
Capital lease obligation, current portion 2,897 3,196
Equipment financing obligations, current portion 61,657 74,295
Accrued liabilities 5,825 3,103
Total current liabilities 279,606 142,176
 
Deferred income taxes 23,300 18,689
Bank loans, less current portion 70,824 39,380
Long-term loans due to VimpelCom 94,363 40,000
 
Equipment financing obligations, less current portion 11,106 6,563
 
Minority Interest 3,091 188
 
Shareholders' equity 271,397 260,380
 
Total liabilities and shareholders' equity US$753,687 US$507,376
 
Open Joint Stock Company "VimpelCom - Region"
Unaudited Condensed Consolidated Statements of Cash Flows
 
  Six months ended
June 30,
2003 2002
(In thousands of US dollars)
Net cash provided by (used in) operating activities US$32,836 US$(13,503)
 
Proceeds from bank and other loans 99,144 1,037
Proceeds from loans from VimpelCom 54,243 27,700
Proceeds from issuance of ruble denominated bonds 97,119 -
Repayment of bank and other loans (34,488) (1,037)
 
Repayment of equipment financing obligations (120,259) -
Repayment of capital lease obligations (119) (943)
Net cash provided by financing activities 95,640 26,757
 
Purchase of property and equipment (103,951) (30,077)
 
Purchase of StavTeleSot stock, net of cash acquired of US$658 (38,143) -
Purchase of intangible assets (8,944) (2,111)
Purchase of other assets (3,058) (1,325)
Net cash used in investing activities (154,096) (33,513)
 
Effect of exchange rate changes on cash 1,557 (294)
 
Net decrease in cash (24,063) (20,553)
Cash and cash equivalents at beginning of period 52,703 28,602
 
Cash and cash equivalents at end of period US$28,640 US$8,049
 
Supplemental cash flow information
 
Non-cash activities:
  Equipment acquired under financing agreements US$23,940 US$36,416
Accounts payable for equipment and other long-lived assets 21,510 2,942
 
Acquisitions:
  Fair value of assets acquired 66,634 -
Difference between the amount paid and the fair value of net assets acquired (4,699) -
Cash paid for the capital stock (38,801) -
  Liabilities assumed US$23,134 US$-

Notes:

  1. EBITDA is a non-U.S. GAAP financial measure. EBITDA, which represents operating income before depreciation and amortization, should not be considered in isolation as an alternative to net income, operating income or any other measure of performance under U.S. GAAP. We believe that EBITDA is viewed as a relevant supplemental measure of performance in the wireless telecommunications industry. The performance that EBITDA measures does not include our need to replace our capital equipment over time. Reconciliation of EBITDA to operating income, the most directly comparable U.S. GAAP financial measure, is presented below.
  2. EBITDA margin is EBITDA expressed as a percentage of net operating revenues. Reconciliation of EBITDA margin to operating income as percentage of net revenues, the most directly comparable U.S. GAAP financial measures, is presented below.

Reconciliation of VimpelCom-Region EBITDA to operating income
(In thousands of US dollars)

  Three months ended
June 30, 2003 March 31, 2003 June 30, 2002
EBITDA US$33,243 US$15,390 US$(1,294)
Depreciation (8,524) (6,760) (1,985)
Amortization (5,637) (4,550) (136)
Operating income US$19,082 US$4,080 US$(3,415)

Reconciliation of VimpelCom-Region EBITDA margin to operating income as percentage of net revenues

  Three months ended
June 30, 2003 March 31, 2003 June 30, 2002
EBITDA margin 36.21% 23.61% (9.67%)
Depreciation as percentage of net revenues (9.28%) (10.37%) (14.84%)
Amortization as percentage of net revenues (6.14%) (6.98%) (1.02%)
Operating income as percentage of net revenues 20.79% 6.26% (25.53%)

Reconciliation of VimpelCom-Region EBITDA to operating income
(In thousands of US dollars)

  Six months ended
June 30, 2003 June 30, 2002
EBITDA US$48,633 US$(5,162)
Less: Depreciation (15,284) (2,915)
Less: Amortization (10,187) (271)
Operating income US$23,162 US$(8,348)

Reconciliation of VimpelCom-Region EBITDA margin to operating income as percentage of net operating revenues

  Six months ended
June 30, 2003 June 30, 2002
EBITDA margin 31.0% (24.8%)
Less: Depreciation as percentage of net operating revenues (9.7%) (14.0%)
Less: Amortization as percentage of net operating revenues (6.5%) (1.3%)
Operating income as percentage of net operating revenues 14.8% (40.2%)
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