Bellared Holdings Limited, controlled  by billionaire Arcady Rotenberg and Universal Telecom Investments Strategies of Konstantin Malofeev, is calling off the planned acquisition of 10.7% stake in Russia’s state-controlled long-distance operator Rostelecom, Interfax reports citing the joined statement by the companies. The reasons for cancellation of what previously was referred to as a done deal is the Cyprus crisis, as the deal was supposed to be carried out by Cyprus-based subsidiaries on the buyers side. However, Interfax adds that according to its sources, the deal was broken by Rostelecom due to recent acquisition of Tele 2 Russia by state-controlled bank VTB, which changed the market landscape and brought understanding that the assets to be sold have a greater potential.

To remind, according to a report by Vedomosti, after the recent sale to the country’s second largest bank state-controlled VTB, the Russian business of Tele2 might be set up as a joint venture with major fixed-line operator Rostelecom which already has 3G and 4G licenses. VTB was reportedly in talks over the deal with Arcady Rotenberg, an investor in Rostelecom. For Rostelecom this would mean becoming a fourth largest operator in Russia, following the “big three” MTS, VimpelCom, and MegaFon.

In a separate announcement, the head of the Federal State Property Management Agency Director Olga Dergunova told the press that the Russian government might sell its entire stake of 55.17% in Rostelecom as early as in 2013. While previously this month the same agency was inclined to postpone most of the big privatisation deals to 2014, “rushing” Rostelecom sale might be indeed related to upcoming merge with Tele 2 Russia.

VneshEkonomBank and other state agencies control 53.25% of the shares of Rostelecom, which in 2011 merged with Russia’s largest telecom holding Svyazinvest and the subsequent integration of 7 interregional fixed-line telecom providers controlled by Svyazinvest (CenterTelecom, North-Western Telecom, VolgaTelecom, Uralsvyazinform, SibirTelecom, Dagsvyazinform, and Dalsvyaz). The IFRS net profit of Rostelecom went down by 17% y/y in 2012 to RUB 35.24bn (USD 1.14bn). To compare, the IFRS net profit increased by 47% y/y in 2011 to RUB 46.1bn and by 22% y/y in H1/12 to RUB 23.4bn. In Q4/12 alone the net profit of Rostelecom dropped more than 3-fold y/y to RUB 4.6bn. Revenues in 2012 increased by 7% y/y to RUB 321.3bn, OIBDA inched up by 1% y/y to RUB 118.6bn at a margin of 36.9% vs. 395 in 2011. Capital expenditures increased by 10% y/y to RUB 91.2bn, net debt went up by 26% y/y to RUB 203bn. In 2012 Rostelecom announced extensive borrowing plans, including a tender won by VTB to open two renewable credit lines worth RUB 30bn each.