The company wants to share investments in network development with a partner, fearing the development of the political situation
A Russian businessman told Vedomosti that part of MTS Ukraine is up for sale, and a source close to the company's shareholders confirmed the news. Two Ukrainian entrepreneurs are also aware of the negotiations. They say MTS has selected a bank to value the asset, but are not specifying which one. One of them only specified that it is part of a "large international group."
All of Vedomosti's sources say the challenging political situation has prompted the operator to consider selling part of its Ukrainian business. They explain that local authorities regularly raise questions for the Russian owners. Sources recall the recent competition for third-generation (3G) frequencies. Ukraine's National Commission for State Regulation of Communications and Informatization (NKRSI) intended to bar companies over 50% owned by Russian shareholders from participating in the 3G license competition. However, the NKRSI ultimately made no specific decisions regarding the Russian companies, and a source at MTS assures that "the company will be admitted to the auction."
"The issue [of a possible deal] is being discussed," but not at a high level, says a source at AFK Sistema (the majority owner of MTS). According to the source, "many different ideas are emerging" due to the high risks faced by Russian businesses in Ukraine. A source close to MTS explains that the potential deal could be aimed, in part, at securing dividend payments. Currently, it appears that a Ukrainian company is paying dividends to a Russian company, which could anger the Ukrainian authorities, the source explains. According to MTS-Ukraine's financial statements for 2012 and 2013, the company paid its parent company 2,23 billion hryvnias in dividends (at the exchange rate at the end of 2013, $270 million).
A source at MTS claims the operator is seeking a Western partner to share the burden of investing in licenses and 3G networks (see inset). The idea is for the new investor to become a stakeholder and partially finance construction in exchange for participation in dividends from MTS's Ukrainian subsidiary. According to the source, there is no certainty yet regarding the amounts or stakes involved, and no one has expressed interest in this opportunity, although the search began in the summer due to political instability. Two major banks have been selected as consultants. The source declined to disclose the names of these banks.
In the second quarter of 2014, MTS's Ukrainian business accounted for almost 8% of its total revenue. As of the end of June, the operator served 23,07 million subscribers, ranking second in subscriber base after Kyivstar. MTS-Ukraine's share of MTS's total revenue has been declining year on year, notes Mikhail Alekseyev, Managing Partner at AC&M-Consulting. He notes that MTS, like its closest Ukrainian competitor, Kyivstar, has very high network usage rates (average monthly call minutes per subscriber) with a low average subscriber bill. This occurred with the entry of a third player, Astelit (life: brand), after which operators began offering more tariffs focused on intra-network communication, Alekseyev notes.
Igor Litovchenko, founder and former CEO of Kyivstar, believes that only a major international player or an independent entrepreneur could become a shareholder in MTS Ukraine. Litovchenko believes that Ukraine's antitrust regulator is unlikely to approve the acquisition of the operator by any existing operator. Therefore, he believes, finding an investor could take a long time.
MTS has no intention of leaving Ukraine, says operator representative Dmitry Solodovnikov. The company is interested in developing its business and infrastructure, including next-generation networks, he continues. He declined to comment on the possible sale of a stake in its Ukrainian subsidiary.
Elizaveta Sergina, Oleg Salmanov, Igor Tsukanov, Ведомости
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