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. Last Updated: 07/27/2016

Court Delays Dalsvyaz Tax Case

Court hearings on the $26 million tax claim on telecom provider Dalsvyaz, the Far East subsidiary of Svyazinvest, have been postponed until April, the company said late Tuesday.

The announcement came as Economic Development and Trade Minister German Gref said that by the end of next week the government would remove the last barriers to Svyazinvest's privatization.

"The draft of the Svyazinvest privatization decree has been agreed upon by all the interested government bodies," Gref said, Interfax reported Tuesday. "We, along with the IT and Communication Ministry, will submit it to the government next week, [or] maybe before the end of this week."

The state owns 75 percent minus one share in Svyazinvest, which besides Dalsvyaz controls Moscow's fixed-line service MGTS and long-distance monopoly Rostelekom.

The smallest of Svyazinvest's seven regional telecoms, Dalsvyaz is appealing the 718 million ruble tax claim, which the company received last month.

Given Svyazinvest's eagerly awaited privatization, the timing of the tax case against Dalsvyaz has raised eyebrows, as the bad news could weigh down the company's value in advance of the sale.

On Monday, the Moscow Arbitration Court told both Dalsvyaz and the tax authorities to supply additional evidence and scheduled the hearing for April 12, the company said in a statement.

By then, the privatization of Svyazinvest may well have met with final government approval, which in practical terms means the holding will be struck from the list of the state's "strategic" enterprises.

If President Vladimir Putin signs the privatization decree quickly, then the sale could take place this year, Gref said.

While there has been a good deal of talk about Svyazinvest's privatization in the past, Gref's comments carry more weight because they contain specifics, said Tatyana Tolmachyova, analyst with IKS-Consulting.

IT and Communications Minister Leonid Reiman said last year the government stake in Svyazinvest was worth about $2 billion. Vladimir Yevtushenkov, president of an interested buyer, AFK Sistema, said last month the telecom purchase was worth $3 billion to $4 billion.

Gref's announcement gave shares of Svyazinvest's regional telecoms a boost, Tolmachyova said. But the continuing tax woes of Dalsvyaz may lower its market attractiveness, she said.

Rostislav Musiyenko, Broker Credit Service's telecom and finance sector analyst, discounted the possibility of a conspiracy to bring down Dalsvyaz's value before privatization, saying that would go against the government's interest.

"If Dalsvyaz loses its appeal, similar claims can be brought against other regional telecoms," Musiyenko said.

In any case, it's unlikely that Dalsvyaz will end up paying the full tax bill, he said. "Even the tax claims against a private company, VimpelCom, were not enforced in full," Musiyenko said.

The country's No. 2 mobile telephone service provider, VimpelCom, recently won a reduction in back taxes and fines for 2001, lowering its bill to $17.7 million from an original $157 million claim.