Orascom: further (mis-)adventures in North Korean telecommunications
One of the more intriguing developments in North Korea has been the growth of cellular telephone services for the masses (or at least non-apparatchiks) provided by Koryolink, a joint venture between the government’s Korea Posts and Telecommunications Company and Egypt’s Orascom Telecom. The increasing availability of cell phones is interesting for what it might or might not mean for the regime’s stranglehold on information. And Orascom’s investment is the largest foreign private investment in North Korea. So it’s something worth keeping an eye on.
Lately, though the news has not been so good: Orascom, which has specialized in bringing cellular services to challenging markets in Africa, Central Asia, and the Middle East, has been having trouble repatriating its profits. The crux of the issue, according to Martyn Williams’ wonderful North Korea Tech blog, is that Orascom wants to convert its North Korean won earnings at the official exchange rate while ironically the government wants to use something more akin to the black market rate. According to Williams, “Orascom’s cash in North Korea is worth roughly $540 million at the official exchange rate, but that plummets to about $8 million when the black market rate is used.” That’s what the accountants call a material difference. It’s so different that a restatement could affect the financial statements that the company files with security regulators in Egypt where it is a publicly listed company. The company also issues global depository receipts (GDRs) in New York via BNY Mellon, but it appears that these are Level I private placements to qualified buyers which do not require full registration with the SEC or compliance with the Sarbanes-Oxley Act.
And to make matters worse, it appears that the North Koreans authorities may be trying to squeeze out the Egyptians: Williams reports on the basis of the usual unnamed source in Pyongyang that the government has introduced a rival provider, Byol, which is apparently providing stripped down (and cheaper) services than Koryolink. The claim is unverifiable. But it does coincide with the expiration of Orascom’s five year right to be the exclusive provider of cellular services. With the growth of subscriptions already slowing, the entry of a cheaper rival is obviously not good news.
One is tempted to say “so what?” Orascom got their five year monopoly and now they may face competition. But North Korea desperately needs a foreign direct investment success story. It does not inspire confidence to abuse a company financially that brought in technology and built one of the few components of the country’s infrastructure that appears to meet 21st century standards by not agreeing to repatriation of profits at the official exchange rate and instead insisting on using a rate that one could get on a small transaction in a back alley in Hyesan. Reputation, credibility, and confidence are concepts that North Korea’s elderly communist apparatchiks seem to have trouble grasping. This situation really might amount to cutting off one’s nose to spite one’s face.