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* Court gives Turkcell co-founder right to recover stake
* Says Cukurova defaulted on 2005 loan
* Dispute has hobbled Turkcell's development
* Shares fall as dividend payments still seen blocked
By Estelle Shirbon
LONDON, Jan 30 (Reuters) - One of Turkey's richest men has the right to recover a disputed stake in Turkcell, a British court ruled, throwing him a lifeline in a battle for control of the mobile phone operator with Russian partner Altimo.
The Privy Council ruled on Wednesday that Altimo had been entitled to appropriate the 13.8 percent stake held by Mehmet Emin Karamehmet's company Cukurova which defaulted on a $1.35 billion loan from Altimo.
However, the Turkish firm also has a right to repay the debt and recover the shares, which have effectively been frozen throughout the dispute, the court said.
The near six-year disagreement between Turkcell's major shareholders has left Turkey's biggest mobile phone operator unable to agree the composition of its board, distribute dividends or pursue a coherent growth strategy.
Shares in Turkcell fell 6.8 percent on Wednesday as investors viewed the ruling as keeping the company in limbo.
"(Investors) were expecting a result which would help the dividend distribution. However, for now the ambiguity on the issue remains," said Cemal Demirtas, head of research at Istanbul-based Ata Invest.
The Turkish firm's ability to get the disputed stake back will now hinge on what terms the court sets and whether Cukurova is willing or able to meet them.
"Cukurova has the opportunity to redeem its shares upon payment of the outstanding loan plus interest and costs," said John Reynolds, partner at law firm White & Case, who represented Cukurova in the case.
Altimo, the telecoms arm of Russian billionaire Mikhail Fridman's Alfa Group, said it was satisfied with the court's decision and its confirmation that Cukurova had defaulted.
"(We) look forward to final completion of the dispute which has been damaging to Turkcell for a long time," Altimo Vice President Evgeny Dumalkin said in a statement.
The dispute centres around a loan taken in 2005 by Cukurova from Altimo, which indirectly holds 13.2 percent of Turkcell. Nordic telecoms group TeliaSonera holds 37 percent of Turkcell while the remaining 34 percent is largely free float.
Cukurova put its stake in Turkcell up as collateral for the loan.
In a complex 36-page ruling, the Privy Council rejected Cukurova's argument that it had not defaulted and said Altimo had been entitled to bring forward the loan repayments and to appropriate the Turkcell shares.
But it said that relief against forfeiture - the opportunity to reclaim the appropriated stake - should be available to Cukurova on appropriate conditions.
The Privy Council, the highest court of appeal for many Commonwealth countries, is hearing the case because both of the holding companies with stakes in Turkcell are registered in the British Virgin Islands.
The court said it needed more information before it could make a final decision on the terms under which Cukurova could recover the disputed stake, and had sent the parties a list of points that needed to be clarified.
Karamehmet, 68, whose interests range from energy and construction to satellite television and newspapers, has been embroiled in legal and boardroom struggles with his Russian and Nordic partners in Turkcell for years.
After co-founding the telecoms firm in 1994, he was forced to quit as chairman in 2010 as Altimo and TeliaSonera tried to limit his influence, although he still managed to install ally Colin Williams as his successor.
Altimo and TeliaSonera regard Williams, a designated independent board member, as a proxy for Karamehmet and the three have been unable to agree on the composition of the board since then, prompting warnings from the Turkish market regulator and the threat of legal action from minority shareholders.
TeliaSonera cautiously welcomed the court ruling.
"We welcome all developments towards clarifying the ownership in Turkcell and this is one step in that direction but hardly the last," it said.
Turkey's telecoms watchdog said ahead of Wednesday's ruling that it would have to approve any change in control of Turkcell, highlighting Turkish sensitivities about the country's biggest mobile operator potentially falling out of Turkish hands.
Had the court awarded the disputed stake to Altimo, it would have left Turkcell with no major Turkish shareholder.