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. Last Updated: 07/27/2016

Telecom to Pioneer Share Test

Uralsvyazinform, a regional Russian telecommunications concern, has been selected as the pilot company for a new liquidity development program some say could lead to a Western-style global share offering by the end of the year.

Designed to attract foreign investment in recently privatized Russian companies, the program aims to boost share trading in Uralsvyazinform and four or five other yet-to-be-disclosed Russian companies. More shares, better marketing and a registry of committed market makers, regulators believe, will cure some of the risk related to low stock liquidity.

Put together by Russian securities regulators, the European Union's TACIS program and private contractor ARES, the liquidity program specifically selected Uralsvyazinform to be its flagship for a new and improved Russian securities market.

Uralsvyazinform is being served up as an exemplary second-tier company that has declared itself open to Western management and willing to undergo a western-standard audit. It hopes in return to attract substantial and desperately needed foreign investment. Western investors have already sunk huge sums into Russian blue chip shares such as LUKoil and Gazprom.

With regulators' seal of approval, companies like Uralsvyazinform might also lure some of the savings skeptical Russian investors keep tucked away.

"Under the right conditions ... we'll be able to show that overcoming these difficulties depends on the company itself, with a level of management used around the world but which is alien to old-style Soviet directors," said Alexander Kolesnikov of Russia's Federal Securities Commission, at a news conference Wednesday to introduce Uralsvyazinform.

"The case we're making is that this company is a good investment which so far has had its capitalization kept fairly low" by a lack of liquidity, said Pierre Levin, general director of ARES.

Uralsvyazinform trades at a price-to-earnings ratio of about 2. While that's low by some emerging markets standards, the Perm-based telecommunications company "should trade at PE levels of 10 or 11, so that when the company places shares it's more in accord with the value of its assets," Levin said.

If all goes according to the program's plan, more liquidity will translate into "improved accessibility and visibility of shares to foreign investors," he said.

Many details have yet to be worked out. Special independent registrars like the National Registry Company are still talking with the securities commission and TACIS about who will create the infrastructure for better liquidity, but none have yet been named.

"Together with ARES and the commission we'll make our choice," said Uralsvyazinform's general director Vladimir Rybakin.

Meanwhile, Uralsvyazinform and its advisers have met with Bank of New York officials on plans to qualify to offer American Depository Receipts, which make it easier for foreigners to buy shares. An offering could come to market as soon as October, Levin said.

Privatized in 1994, Uralsvyazinform enjoys a virtual monopoly as the biggest telephone company in the Western Urals, with roughly 380,000 subscribers. It is 51 percent owned by the state.

Besides conventional telephone services, Uralsvyazinform has started including cellular phone and paging services, data transmission, radio and television broadcasting. At a projected 30 percent growth rate, Uralsvyazinform's profit is estimated at $105 million by the year 2000, compared with $20 million in 1995, Levin said.

Rybakin pointed out one problem: bill collection. "We're working on that" with a new billing system that tracks customer calls and charges, he said.