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. Last Updated: 07/27/2016

Soros: Renationalize Giant Svyazinvest

American financier George Soros has written to the government suggesting it renationalize the telecoms holding Svyazinvest and convert the stakes held by the Mustcom consortium into shares in inter-regional telecoms companies.

Mustcom owns a 25 percent plus 1 share blocking stake in the holding. The government owns the remainder.

Cyprus-based Mustcom was created by Soros, Vladimir Potanin, a former Cabinet minister who owns the Interros financial-industrial group, and a few others as a bidding vehicle for an August 1997 privatization tender.

Soros has written to Prime Minister Mikhail Kasyanov, Communications Minister Leonid Reiman and Property Minister Farit Gazizullin, reminding them that the sale of the stake to Mustcom for $1.875 billion was the nation's biggest privatization transaction.

However, from the moment of the sale, the value of Svyazinvest has declined dramatically. In the future, the value of Mustcom's stake and the government's stake in the holding will depend on the plans to restructure Svyazinvest.

Svyazinvest should relinquish the controlling stakes in regional companies, Soros wrote. Only then can they attract strategic investors from a number of Western telecoms companies.

Andrei Bogdanov, telecoms analyst at Alfa Bank, agrees with Soros. Western telecoms have taken out large loans to buy third-generation mobile licenses and their interest in strategic investments has noticeably decreased, he said.

It may well be that Svyazinvest directors are also studying the possibility of surrendering their control of the consolidated companies. The holding's management has announced more than once its intention to issue third-level American Depositary Receipts, which can be sold directly to all categories of investors, on behalf of regional companies. This will entail additional share emissions by these companies.

"This means that [Svyazinvest] is prepared to act on the basis of principles and relinquish the controlling stakes," Bogdanov said.

However, having made the proposal, Soros himself no longer wants to be a shareholder of Svyazinvest. He is prepared to exchange his stake in the Mustcom consortium for stakes in the inter-regional companies.

"Soros understands Svyazinvest is a poorly managed, cumbersome state property. Of course, it's better to directly own some of the assets than to only hold a part of a surrogate holding," Bogdanov said.

Analysts are not certain such an exchange will be profitable for the government.

"If Mustcom leaves the Svyazinvest holding and Svyazinvest no longer holds controlling stakes [in regional companies], then Svyazinvest will no longer interest investors," said Konstantin Chernyshev, telecoms analyst for NIKoil brokerage.

The Property Ministry knows about the letter.

"As regards the conversion of the shares of Mustcom into shares of national operators, we are categorically against it," said Alexander Borodin, the head of the bureau for transport and communications property.