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. Last Updated: 07/27/2016

Sonic Duo Sees Ownership Switch

The holder of Moscow's third GSM 900/1800 MHz standard cellular license has no customers and no advertisements in the streets — but in the weeks leading up to its planned autumn start-up, Sonic Duo is receiving plenty of attention from its latest change in ownership.

Central Telegraph confirmed Monday after a shareholders meeting that it was pulling back financing in the Finnish-Russian joint venture. Its stake now stands at less than 1 percent in Sonic's majority shareholder, Central Telegraph Mobile, or CT-Mobile, according to the World Bank, which is considering a $40 million loan to Sonic.

Taking almost the whole pie is CT-Mobile's other shareholder, LV Finance, which, unlike Central Telegraph, said it had the cash.

Sonic Duo is 35 percent owned by Finnish company Sonera and 65 percent by CT-Mobile, which was previously 51 percent owned by Central Telegraph and 49 percent by Bahamas-based Transcontinental Mobile Investment. TMI is fully owned by Moscow-based and Virgin Islands-registered investment boutique LV Finance.

LV Finance founder Leonid Rozhetskin told Interfax on Monday that Sonic Duo's shareholders had two choices: "either preserve the shareholder structure of CT-Mobile but with this doom the network to a slow 10-year construction in line with the financing capability of Central Telegraph, or move forward" with financing from TMI.

When Sonic Duo issued $22.5 million in new share capital early this year, Sonera and CT-Mobile both chipped in to maintain their stakes. But only TMI was able to pay up, forcing Central Telegraph into dilution. Sonic Duo is planning another $10 million issue this year, Rozhetskin said.

Central Telegraph general director Vaagn Martirosyan told Interfax that his company had not calculated the high cost of Sonic. He said the company still has the option to buy back its shares, but analysts say that is unlikely to happen.

Sonic first appeared on the market in May 2000, when it received a license from the Communications Ministry to operate a GSM network in Moscow. Analysts and media have accused the ministry of favoring Sonic, which received its license without a tender. Last fall, the ministry unsuccesfully tried to give Sonic Duo frequencies taken from Mobile TeleSystems and Vimpelcom, Moscow's No. 1 and 2 operators, respectively.

Sonic Duo is set to receive $40 million in loans and investments from the World Bank, and perhaps an equal amount from the European Bank of Reconstruction and Development.

Carsten Mueller of the World Bank's International Finance Corp. said in a telephone interview from Washington that the loan will help increase wireless penetration and competition. "We also hope it will indirectly help promote additional investment and growth in other areas of Russia," he said.

IFC documents say the EBRD's proposed financing looks similar to the IFC's proposal, set to go up for board approval in August. An EBRD spokesman confirmed they were considering lending financing to the company.

The IFC and the company have estimated that its start-up will cost $210 million. Rozhetskin told Interfax more than $100 million could be invested by year's end. The IFC's proposed financing includes a $6 million investment and a $34 million loan — $24 million from the IFC and $10 million from participating banks.