Comstar in $464M Stock Repurchase

Comstar United TeleSystems, Moscow's largest fixed-line telecoms company, said Thursday that it reacquired 11 percent of its shares for $464 million but that it would have to pay for the stake in installments to maintain liquidity.

Last year, Access Telecommunications, a unit of billionaire Len Blavatnik's Access Industries Holding, paid $322.2 million, or $6.97 per share, for the stake. But after Comstar's shares began falling in August, Access exercised a put option -- which requires a mandatory buyback within a certain period of time if requested by the buyer, Comstar said in a statement.

The news sent Comstar's shares up as much as 18 percent to $2.40 on the London Stock Exchange, which analysts attributed to the company being able to avoid posting a loss when it releases third-quarter earnings Friday.

"Access' decision is timely because it allowed Comstar to record some profits before a sharp slide in its capitalization," said Renat Salikhov, a financial analyst at J'son & Partners Capital.

Comstar CEO Sergei Pridantsev welcomed the decision, saying it would remove volatility resulting from quarterly revaluations of the option from Comstar's income statement.

"We have the necessary funds available to fulfill our obligations under the agreement, and we are paying the consideration in installments to smooth our cash outflows," Pridantsev said in a statement through his press office.

"The acquired shares will be accounted for as repurchased shares until a decision has been taken on the future use of these shares."

MGTS Finance -- a unit of Comstar, which is controlled by billionaire Vladimir Yevtushenkov's Sistema -- issued a call and put options in December 2006 as Comstar prepared to pay for a stake of 25 percent plus one share in Svyazinvest, the state holding company for fixed-line phone operators.

Hopes faded for a long-awaited privatization of Svyazinvest in October, however, after Vedomosti reported that Yevtushenkov asked the government to buy back the Svyazinvest stake for at least $1.9 billion -- more than the $1.3 billion it paid in December 2006.

MGTS Finance reacquired the 46.2 million Comstar shares Wednesday, paying $10.03 per share, or a total of $463.6 million for the stake, the statement said.

The put option cost the company $212.2 million in a noncash loss for the first nine months of 2007 and $27.9 million over the same period this year, Comstar said.

Access will hold the shares as collateral until Jan. 26, 2009, and guarantees will be provided until the final payment is made March 26, 2009, Comstar said, adding that it already paid $100 million.

A sharp decline in Comstar's shares, which have fallen from $11.99 on June 5 to $2.03 on Wednesday, may have scared Access into exercising the option.

"It is a smart move by Access to exercise the option in August because shares of Comstar, which were trading at around $11 at the beginning of the year, have been declining since July," said Anna Kurbatova, a telecom analyst at UniCredit Aton said.