Russia's MTS looking for partner for Ukrainian subsidiary

By bne IntelliNews October 21, 2014

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Russian mobile telecoms giant MTS has put its Ukrainian subsidiary up for sale, according to business daily Vedomosti. In the second quarter of 2014, MTS Ukraine contributed nearly 8% to MTS overall profits, and was the second largest telecom in Ukraine by subscriber base.

According to Vedomosti, the motivation for the sale of MTS Ukraine is the political situation in Ukraine, and hostility towards Russian business following Russian aggression in Crimea and the Donbass. In particular, it is looking unlikely that MTS Ukraine will be allowed to participate in an upcoming government auction for a 3G licence, thus crippling the company's competitiveness going forward. Ukraine's government seems likely to exclude companies with over 50% Russian ownership from participating in the auction, according to statements by Ukraine's prime minister Arseny Yatsenyuk. 

MTS is not planning on leaving Ukraine, said company representative Dmitry Solodovnikov, as quoted by Vedomosti. MTS is interested in developing busuness and infrastructures, including 3G networks. Solodovnikov declined to comment on the possibility of a sale of a stake of MTS Ukraine to an investor.

"The question is under consideration, but not at a high level," a Sistema representative told Vedomosti

Other sources quoted by Vedomosti say that Russia's MTS is looking for a western partner to share the burden of investment in 3G network rollout, and that one part of the deal might be that in return the western partner receives dividends paid out by MTS Ukraine, which would spare Russia's MTS potential political difficulties in Ukraine, given hostility towards Russian assets.  

"The Ukrainian government has talked about excluding MTS Ukraine from the 3G licence auction," writes VTB Capital's Ivan Kim in a research note. "This has not happened yet, but we think MTS might have opted for a prudent approach of getting a partner to its business to lift the political pressure," he adds. 

"It would not be easy to find a partner for Ukrainian operations, in our view, given the economic and political turmoil," Kim warns.

Political and economic turmoil has hit MTS in Russia as well since September, with the company's founder, oligarch Vladimir Yevtushenkov, placed under arrest since September 16, in connection with holding company Sistema's acquisition in 2009 of regional oil company Bashneft.

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