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. Last Updated: 07/27/2016

Svyazinvest Sale Open to West

Both foreign and domestic investors will be allowed to bid in the privatization of 25 percent of the mammoth telecommunications holding Svyazinvest that will start next year, Communications Minister Vladimir Bulgak said Thursday.


"The doors are open for all investors ... abroad or in Russia," he told a press conference.


Bulgak said he expected the sale would raise between $2 billion and $4 billion. He also confirmed rumors that Russia had decided to switch the method of sale from an international tender for the stake led by Western advisors to a sale in several lots handled by Russian banks. He defended the decision to sell the stake in bits. "Unfortunately, there isn't just one strategic investor in the world who could be Svyazinvest's sole partner," he said.


In December 1995, the Russian government nearly sold a 25-percent stake in Svyazinvest to Italian telecom concern STET for $1.4 billion -- money badly needed for the federal budget. But the deal fell through, and since then other investors have failed to step forward in the privatization of Russia's few remaining prize industries.


To sweeten the deal, the Russian government last week tacked on its controlling stake in monopoly long-distance operator Rostelecom to the state-owned Svyazinvest, a holding company created last year for the government's shares in 85 regional telephone operators. Together the mega-holding has a near monopoly on regional and long distance markets.


Bulgak said there were "obviously different methods" to estimate what price the lots might fetch, but said over time he expected the sale of 25 percent could net the government "$2 billion to $4 billion" in much-needed privatization revenue.


Bulgak said he based his estimate on the idea that, after the first sale of perhaps a 5-percent lot whetted investors' appetite for Svyazinvest, future asking prices would ratchet up. Moreover, the holding company would have accrued some Western-style accounting records in the meantime. He did not specify over what time period the lots will be sold.


Bulgak confirmed that MOST Group and Alfa Bank would be the lead bankers handling the Svyazinvest transaction. The two domestic banks earlier this week were handed control of the Svyazinvest-Rostelecom deal from a syndicate of Western advisors led by London-based N.M. Rothschild.


Financial consultants preparing next year's sales will include not only MOST and Alfa, but "other Russian banks, financial structures, leading wire communications companies."


As for interested investors, "there have been not only conversations, but meetings with Russian banks to find out whether they were interested so long as it was in a fair competition."


In the 1995 bidding, only foreign investors were allowed to participate. "The experience of last year ... made clear that financial structures, rather than industry operators" such as STET or Deutsche Telekom "were interested most of all in Svyazinvest," he added.


MOST and Alfa were rumored to have snared the right to handle Svyazinvest because of their close ties to the government. Russian Privatization Center officials have said MOST and Alfa would not only be advisors but possible participants in the deal.


Asked how the two banks would be able to raise money more quickly than the previous foreign advisors, Bulgak said "that's their problem."


Bulgak also said that Rostelecom's planned American Depositary Receipt program would likely still go ahead by the end of 1997, despite the fact that the government has transferred its 51-percent controlling stake in Rostelecom to Svyazinvest's assets. The remaining Rostelecom shares are held by employees and Russian investors.


By 1997, Rostelecom will have three years of GAAP accounting, while Svyazinvest will have only two years. Bulgak said this would make it easier for Rostelecom to raise money on world capital markets.