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. Last Updated: 07/27/2016

Svyazinvest to Spin Off 12 Providers




Telecommunication holding giant Svyazinvest announced it is kicking off a massive restructuring by merging 12 regional operators in northwestern Russia into a single company.


Calling the first merger a pilot project, Svyazinvest said in a statement Thursday that Russia's almost 90 regional operators would eventually be grouped into eight to 12 larger companies.


Svyazinvest did not specify how the mergers would be carried out, nor did the company's financial adviser, Renaissance Capital, which has been appointed to oversee the process.


Svyazinvest could set up a subsidiary holding that would enjoy control over the regional operators, analysts said.


The timetable for completion of the first merger was not disclosed. Svyazinvest officials said next year they will put together four of the providers - St. Petersburg Telephone, St. Petersburg Long-Distance, St. Petersburg Telegraph and Lensvyaz.


The decision to group the 12 providers into one company was made at the beginning of November by the Svyazinvest board under the leadership of new company chief Valery Yashin, who succeeded Oleg Belov in October.


Yashin formerly headed St. Petersburg Telephone.


That company was also the career launching pad for Leonid Reiman, who served as a deputy under Yashin and was appointed to lead the State Telecommunications Committee in September.


That committee gained more power Friday when it was transformed into the Telecommunication and Information Ministry under a decree signed by President Boris Yeltsin. Reiman was named its minister.


Analysts said that although Svyazinvest's restructuring was a move in the right direction, its breakup appeared to be engineered by officials mostly interested in providing a soft landing for themselves once they returned to the northwest.


"They do have private interests in mind. ... I'm not sure that the Svyazinvest management will push for mergers in other regions as they have declared," said an official at one of Moscow's investment banks who asked not to be identified.


Svyazinvest's operations should become more manageable with the planned merger in the northwest, said Konstantin Chernyshov, head of research with NIKoil brokerage.


"This is a workable arrangement," he said. "Svyazinvest was an unmanageable entity due to its size."


He said the first merged company, with expected annual sales of 3 billion rubles ($126 million), would be comparable in size with one of the regional subsidiaries of Telebras (Brazil).


"The sector was overly fragmented," said Andrei Braginsky, telecommunications analyst with Renaissance Capital.


But the success of the scheme in other regions will depend on whether the reformers at Svyazinvest will be able to cut deals with the managers of the regional companies and local governors, Braginsky cautioned.


===


Merger participants


St. Petersburg Telephone


Lensvyaz


St. Petersburg Long-Distance (MMT)


St. Petersburg Telegraph


Murmanelectrosvyaz


Artelecom


Karelia Electrosvyaz


Vologda Electrosvyaz


Pskovelectrosvyaz


Kaliningradelectrosvyaz


Cherepovetselectrosvyaz


Novgorodtelecom


Source: Svyazinvest