MTS Uzbek unit files for bankruptcy

By bne IntelliNews January 17, 2013

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Uzdunrobita, the Uzbek unit of Russia's Mobile TeleSystems (MTS), has filed for bankruptcy in Tashkent, six months after it was forced out of business when its operating licences were suspended.

Uzbekistan's largest mobile operator until June 2012, Uzdunrobita filed for bankruptcy with the Tashkent Commercial Court, on the grounds it is unable to pay its liabilities, MTS said in a January 16 statement. Uznews reports that around 200 Uzdunrobita employees have received dismissal notices.

The Russian mobile telecoms company said that the bankruptcy was connected to the November 2012 order from the Appeals Court of the Tashkent City Criminal Court that Uzdunrobita pay fines and penalties totalling around $600m. The Uzbek law enforcement authorities have already recovered around $150m from the company.

In its January 16 statement, MTS said it would continue to attempt to recover its losses in Uzbekistan. "Uzdunrobita continues to defend its rights in accordance with the laws of the Republic of Uzbekistan. MTS also reserves the right to use all legal options in the international arena in order to claim damages incurred as a result of an unwarranted attack on its subsidiary in Uzbekistan," the statement said.

Uzdunrobita first came under attack from Uzbekistan's State Inspectorate for Communications (SIC) in July 2012, when it was accused of "numerous and systematic violations", and had its operating licence confiscated initially for ten days. The suspension was later extended, causing an exodus of its 9.3m customers to rivals.

In an interview with Reuters shortly after the suspension, MTS vice-president for strategy Michael Hecker described the move as a "classic shakedown". MTS wrote off $$1.079bn in respect of its Uzbek business, including $579m in asset impairment and a $500m provision for anti-monopoly claims, in its Q2 2012 accounts.

The company has also been the target of probes by Uzbekistan's tax authorities and criminal prosecutors. Several of its top managers are wanted by the Uzbek Prosecutor General's office on criminal charges, including former CEO Bekhzod Akhmedov who fled the country in early 2012.

On September 17, the Tashkent Criminal Court ruled in favour of a request by the Uzbek state to confiscate Uzdunrobita's assets. However, Tashkent's position appeared to soften slightly in November, when the appeals court cancelled the September ruling, ordering the company to pay around $600m to the government in damages instead. That led to speculation that MTS may have negotiated a route to restoring its operation.

Moscow has also been putting pressure on Tashkent to allow MTS to return to Uzbekistan, its largest market in Central Asia. Government officials from the two countries are understood to be in talks on the issue.

In what is believed to have been a warning shot, Russian investigators seized a $10m Moscow apartment owned by Uzbek President Islam Karimov's eldest daughter Gulnara Karimova in November 2012, as part of a money laundering investigation. Karimova previously controlled Uzdunrobita before selling it to MTS for a reported $200m, and is rumoured to have been behind the attack.

MTS may find optimisim for its cause in its history in neighbouring Turkmenistan, where - again after lengthy government-level talks - it managed to recover its business after a two-year hiatus. In August, MTS was issued new operating licences and is now rebuilding its business in the country.

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