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. Last Updated: 07/27/2016

Soros to Spurn Svyazinvest Sale


George Soros

Contrary to public statements by First Deputy Property Minister Alexander Braverman, George Soros has no desire to increase his stake in state telecom holding Svyazinvest through any future privatizations, a source close to the billionaire said.

Soros already owns a blocking stake, having paid -- together with other members of his Mustcom consortium -- more than $1.8 billion for 25 percent plus one share of the holding in 1997 in what remains Russia's largest-ever privatization tender.

Braverman recently told online news outlet that Soros could be a potential bidder for the stake in Svyazinvest that the government will put on sale later this year.

The government has said it will privatize Svyazinvest this year, but what size stake it will sell and the starting price have yet to be announced, pending the recommendations of an independent consultant.

Government officials and analysts have said the government is likely to sell its full 75 percent stake. An alternative would be to sell 25 percent minus two shares, just three shares shy of a blocking stake, meaning a controlling stake would remain with the State Property Fund.

Dmitry Vinogradov, an analyst at Brunswick UBS, said Braverman may have been looking to assure potential bidders that Soros was happy with his investment in Svyazinvest. Or he wanted to create the impression of competition for the block of shares to be privatized. "This does not necessarily mean that the price would be pushed higher," he said, but if there is only one real bidder, the illusion of a second "will facilitate privatization."

Svyazinvest has since gone through a two-year reorganization, in which its more than 70 subsidiaries were consolidated into seven super-regional companies, a process Soros has welcomed.

"We've been impressed with the progress," said David Geovanis, Mustcom's representative on Svyazinvest's board of directors. "It is the most successful restructuring of a natural monopoly in Russia."

Since the restructuring began, Soros repeatedly has said he wanted to convert his blocking stake in the holding into 12-percent stakes in the seven super-regional companies.

If the government sells its 75 percent Svyazinvest stake, Soros could find it easier to do so, since the new owner might share the desire to dispense with the holding company altogether and convert its interest into stakes in the super-regional companies.

"It's a matter of the government being psychologically ready to convert the controlling stake it has in Svyazinvest into noncontrolling stakes in the seven super-regional companies," the source said.

Vinogradov said equity markets would prefer that the government dismantle Svyazinvest first and then privatize the resulting super-regional companies, because "privatizing a holding company structure could entail merger term risks for minority shareholders in the subsidiaries."

But the government, he said, may be reluctant to do so, believing that it would need more time to take Svyazinvest apart and get the subsidiaries ready for privatization.