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. Last Updated: 07/27/2016

5% MTS Stake Sold for About $200M

LONDON -- Deutsche Telekom said it sold a 5 percent stake in Russia's largest mobile operator Mobile TeleSystems on Tuesday to raise money toward paying down debt.

Europe's largest telecoms carrier said in a statement that it had raised around $200 million and would use the cash exclusively to pay down its 61.1 billion euro debt pile.

Investment bank CSFB offered 4.9 million shares to institutional investors at a price of $40.50 each, a 9.4 percent discount to Monday's closing price, dealers said.

Deutsche Telekom had said in mid-March that it would cut its 40.1 percent stake in MTS by placing 5 percent on the market and giving co-owner Sistema an option to buy 10 percent.

Ari Krel, a portfolio manager at UFG Asset Management in Moscow, said the discount looked excessive at 13 percent below the stock's recent high.

"They may have struck these prices a week ago when the share price was lower, and the recent rally caught them flat-footed," Krel said.

But others said Deutsche Telekom had raised more than it could have hoped for a month ago, even given that discount.

"If you look at this from the perspective of Deutsche Telekom, when they started negotiations on this deal the price was in the low-30s," said Dmitry Vinogradov, a telecoms analyst at Brunswick UBS. "Now they are placing at 40, a lot more than the price they were ready to accept for it."

In New York, MTS shares were down 3.24 percent at $43.25.

Some said Deutsche Telekom had given away a precious asset on the cheap. "This is the leader in a market of 200 million people of which just 12 percent use mobile phones," said Frank Rothauge, an analyst at private bank Sal. Oppenheim.

"They had the chance to win control over MTS in the medium term, but the sale to Sistema cements the power at MTS for the foreseeable future."

Russian investment group Sistema, which already owns 40.4 percent of MTS, has until September to buy the 10 percent stake and clinch control of MTS, which generates cash and is one of only a handful of Russian firms to have earned a U.S. listing.

"It seems like a very good time for Sistema to exercise their option, and I don't think they will wait," Brunswick UBS's Vinogradov said.

The MTS shares were placed as Global Depositary Receipts. They cannot be converted into the MTS American Depositary Receipts, which trade on the New York Stock Exchange, until MTS makes a listing on a Russian exchange, the fund managers said. MTS has said it is looking into such a listing.