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. Last Updated: 07/27/2016

NEWS ANALYSIS: Svyazinvest Plans to Boost Its Value




Trying to avoid repeating past mistakes, telecom holding Svyazinvest has outlined plans for further privatization plans and restructuring to bring the company into line with investors' expectations.


Throwing a gauntlet down to the State Duma, parliament's lower house, Svyazinvest director Valery Yashin said Tuesday that the planned sale of a 25 percent less two shares stake could be postponed and he pushed a wildly inflated $9 billion price tag for the shares.


This week, Yashin also reiterated Svyazinvest's commitment to conduct a massive revamp of the sector, putting together small companies and merging them into larger production units.


Svyazinvest will grow into a holding of eight to 10 large regional operators plus several companies, processing interregional traffic.


The painstaking restructuring process will last two to three years and will end up with the creation of a vertical holding structure in the industry, currently broken up into 87 regional operators and service companies.


"We consider the recent changes in Svyazinvest's corporate charter as a very positive development for regional telecoms and for [international provider] Rostelecom," said Andrei Braginsky, telecommunications analyst with Renaissance-Capital investment bank.


"They are not that great," countered Tom Adshead, a telecom analyst with Troika Dialog brokerage. "They mostly benefit Mustcom but not the potential purchaser."


Mustcom holds a 25 percent plus one share blocking stake in Svyazinvest, acquired in August 1997 for $1.87 billion.


Renaissance-Capital now bets on a rally in second-tier telcos as the market becomes broader.


"First-tier companies could pull the rest of the market up, all the more given that energos are less attractive while many oil companies are rated avoid by brokerage houses," Braginsky said.


The Moscow Times Index is up 49 percent since Oct. 1, while Rostelecom and Vimpelcom are both up 69 percent.


"There is a possibility that some illiquid telecoms will benefit from merger with larger companies," Adshead said. He played down the possibility of a rally in second-tier due solely to broadening of the market.


Svyazinvest is one of the companies included in the privatization list of the draft 2000 budget, which calls for revenues of 18 billion rubles ($563 million).


While a prospective price of $9 billion caused smiles among analysts, other steps made by Svyazinvest show that company managers are serious about improving the holding's value.


Trying to improve the attractiveness of the company to investors, the government last week allowed for changes in the company charter, giving more powers to minority shareholders.


Approval for additional share issues in Svyazinvest's subsidiaries will now require a unanimous vote of the board. If that vote fails, two-thirds of board members can approve new issues within 60 days of the first vote.


The appointment of a director general, private placement of Svyazinvest's shares, pre-emptive purchases of shares in public subscription and related-party transactions will require approval of two-thirds of board members.


From January to September this year, Svyazinvest posted a profit of 5.14 billion rubles ($214 million) on revenues of 40.6 billion rubles ($1.67 billion).