Russia's Vimpelcom has resolved a long-running dispute with the Algerian government by selling it a majority stake in the country's biggest telecoms operator for $2.6 billion, while it will keep control and slash debt.

Orascom Telecom Algeria, also known as Djezzy, is a prized asset, which Vimpelcom bought in 2010 from Egyptian tycoon Naguib Sawiris as part of a more than $6 billion deal as it aimed to diversify outside of Russia.

Algeria that year made moves to nationalise Djezzy, hitting the business with back tax claims and restrictions on imports and foreign exchange transactions, creating uncertainty that has weighed on Vimpelcom's shares.

On Friday, Russia's third-largest mobile operator said that Global Telecom Holding (GTH), its 51.9% owned subsidiary, had signed an agreement to sell a 51% stake in Djezzy to the Algerian National Investment Fund (FNI) for $2.6 billion.

The deal will help Vimpelcom reduce its $27.5 billion of gross debt, built up in an acquisition spree, by $4 billion.

"It's a great day for the company. It has been a three-year journey, and now it has come to an end," Vimpelcom chief executive officer Jo Lunder told Reuters.

"It is possible for us to take advantage of the very attractive telecom market in Algeria and continue to develop Djezzy, which has been difficult for us all these years," he said.

GTH will keep a 45.6% stake and buy the remaining 3.4% of Djezzy shares from minority shareholder Cevital for $178 million, Vimpelcom said.

POSITIVE FOR VIMPELCOM

Despite ending up with less than 51%, GTH will continue to exercise operational control over Djezzy, based on a shareholder agreement between GTH and the fund.

Djezzy will pay Algeria a $1.3 billion fine, however, to lift foreign exchange and import restrictions. It will also write off tax receivables worth $700 million, implying a total write-off by Vimpelcom of $2 billion in its 2013 financial report.

Vimpelcom ADRs were up 8.6% by 1345 GMT at $9 on Friday in New York.

Alexander Vengranovich, an analyst at Otkritie Capital in Moscow, said the terms of the settlement were favourable for Vimpelcom as he upgraded his target price to $11.30 from $11.

"In our view, the deal is very positive for Vimpelcom as it signals the long-awaited resolution of the dispute with the Algerian government on very favourable terms," he said.

Vimpelcom also has an option to sell its stake in Djezzy to FNI on the seventh anniversary of the closing of the deal.

GTH will receive $1.86 billion in dividends from Djezzy prior to the closing of the transaction and will pass on these funds and the proceeds from the Djezzy stake sale to Vimpelcom by repaying it an outstanding loan.

Otkritie's Vengranovich said that using the proceeds to deleverage meant that Vimpelcom would be able to resume dividend payments that would be closer to normal after it slashed payouts in January to preserve cash for debt repayments.

Last month, Vimpelcom also announced a refinancing plan for its Italian subsidiary, Wind.

Vimpelcom's biggest shareholders are Russian billionaire Mikhail Fridman's Alfa Group and Norwegian telecoms group Telenor.