Russia’s AFK Sistema mulls merger of Indian unit with Reliance Communications

By bne IntelliNews May 19, 2015

Russian telecom and industry holding AFK Sistema is looking to merge its Indian mobile unit SSTL, operating under the MTS India brand, with Reliance Communications, Bloomberg reported.

Sistema’s controlling shareholder Vladimir Yevtushenkov already met the owner of Reliance Communications, Anil Ambani to discuss a deal which could be structured as a non-cash transaction, industry sources told the agency on May 15.

Reliance Communications serves 109mn customers in GSM and CDMA standards. It controls 11.3% of the Indian mobile market, while SSTL has 0.9% market share and 8.9mn customers. "The Indian mobile market is highly competitive and highly fragmented, with 11 providers currently operating in the space," UralSib analysts said in a note. "SSTL, as one of the weakest operators, has so far failed to achieve break-even, having generated negative $82mn in OIBDA in 2014."

Nevertheless, any progress towards a merger would support the stock, the analysts said, as it would eliminate the risks of SSTL requiring further financing from Sistema's corporate centre. "At the moment, SSTL has zero value in our SOTP valuation of AFK Sistema. [However], Sistema currently offers 15% upside to our year-end target price of $9.6/GDR. We reiterate our Buy recommendation for the stock," the note added.

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