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. Last Updated: 07/27/2016

Mustcom Gets New 4-Year Lease on Life

George Soros has managed to hang onto his blocking stake in state telecoms monopoly Svyazinvest after fellow investors voted Friday to extend the life of Mustcom for four more years, according to sources close to Mustcom.

Mustcom has a 25-plus-one stake in government-controlled Svyazinvest and, under the previous trust agreement, the notes were supposed to convert back into shares in the telecoms holding on Aug. 11.

Soros Fund Management, which has at least 53 percent of Mustcom, had been pushing a plan to extend that deadline to keep the consortium together until 2005, with the intention of maintaining its influence with the government, which owns the rest of Svyazinvest. Coming down to the wire, SFM received the necessary 90 percent of votes cast, sources said.

Passing the proposal meant winning over Interros head Vladimir Potanin. Interros-owned ICFI (Cyprus) Ltd. has about 7 percent of Mustcom and with Brice Management, another minority noteholder, initially rejected SFM's proposals at a June meeting. To put off dissolution requires 90 percent noteholder approval, but in that vote only 89.2 percent supported an extension, with ICFI and Brice Management in opposition.

An Interros source said ICFI was in part appeased Friday by a vote in favor of increasing the percentage of votes required to pass most decisions. Before, SFM could push its proposals through, since only 50-plus-one percent was necessary, the source said.

"Such a decision-making process allowed one noteholder representing the Soros Fund to decide all the matters without taking into account the position of minority shareholders," the source said.

"The only matter where minority shareholders could make their position meaningful was the matter of the dissolution of Mustcom."

SFM declined to confirm or comment on the vote.

But there are indications that Potanin is receiving more than just an amendment to the way votes are counted.

Potanin has reportedly been gearing to sell his stake to SFM. Vedomosti newspaper reported Friday that one agreement of the sale has already been signed or would be signed in the near future.

"It's commercially pointless to remain in Mustcom in its current form," Potanin told Vedomosti. "So the question was put forward: Either we change the conditions around Mustcom, or you buy us out, or we buy you out."

Breaking up Mustcom would have left investors with little sway in government-driven reform of the telecoms sector, where dozens of regional operators will merge into seven over the next few years. Soros has advocated that the government eventually allow Mustcom's Svyazinvest stake to transfer into shares in the regional companies, though officials have not publicly given any warm response to the idea.

Soros still calls Svyazinvest the worst investment decision he ever made: The consortium paid almost $2 billion in 1997 for a stake now worth around $300 million.

Noteholders approved other resolutions as well, including issuing general depository receipts on some of the notes.