Sergei Kuznetsov in Minsk -

Through February 5, the government of Belarus is accepting bids in another attempt to sell a 51% stake in state-controlled Mobile TeleSystems (MTS), the Belarusian mobile phone operator that's a joint venture with the eponymous Russian telecommunications group. The starting price has been cut by the cash-strapped Belarusian government to $863m in an attempt to attract an investor, but will this be enough to secure a deal?

Over the past few years, the government of Belarus has tried in vain to sell a 51% stake in MTS, but the asking price of $1bn was considered too high by potential buyers. Cutting the price was made possible after President Alexander Lukashenko, who had repeatedly insisted on the $1bn price, announced in October he would sanction such a reduction given the current economic climate. "If today the price were not $1bn, which was set when the market was high, but $900m, I would sell it," he told journalists.

Russia's MTS, which already controls a 49% stake in the joint venture, has previously expressed an interest in purchasing the remaining shares, but the company insisted the price of $1bn is too high. And it appears the new lower price has not made much of an impression on the Russian firm. Vladimir Evtushenkov, chairman of the board of AFK Sistema, the conglomerate that controls MTS, was quoted by Russian business daily Vedomosti on December 23 as saying that the price is still too high, given "today's market and the state of the telecommunications industry."

"Unfortunately, the telecommunications industry is gradually transforming into a low-margins business. It is searching for its place in the new paradigm, after the appearance of Facebook and Google," Evtushenkov explained. "We understand the position of the Belarusian side: they want to sell us [the asset] for as high a price as possible. It would be foolish to think that they should do us any favours. Therefore, there is a normal dialogue, including over the upcoming tender."

Money matters

Oleg Andreyev, managing director of investment banking at Minsk-based EnterInvest, tells bne the fair value of the Belarusian mobile operator is nearer $1.1bn-1.4bn, given the company's financial results as well as the risks that exist in the struggling Belarusian economy, which is considered hyperinflationary. "This means that a 51% stake in MTS cannot go beyond the range of $600m-750m, taking into consideration a possible premium which could be paid for control."

"These figures correspond to a per-subscriber cost of $220-260, which is at a similar level to neighbouring countries," Andreyev adds.

Andreyev admits that the sale of a 51% stake to Russian MTS would be the "most obvious" solution to the situation. "Russia's MTS is currently the only company which would be willing to pay a premium for obtaining full control of the Belarusian asset," he says.

Even so, analysts say it's likely the Belarusian firm will be the subject of interest from other large state-owned companies in Russia, in particular Rostelecom, which is Russia's largest long-distance telephony provider. Indeed, last year a representative from Rostelecom visited Minsk to attend a presentation of MTS aimed at potential investors. "We are looking at all options. For now we are studying the Belarusian market," Rostelecom's M&A department director Andrei Poluektov was quoted as telling local media at the time.

The fresh attempt to sell the MTS stake is part of a wider privatisation effort by the Belarusian government, initiated toward the end of 2013. In October, the Belarusian State Property Committee published a list of state-run enterprises that would be offered to potential investors, including a number of assets that could be considered as part of the "family silver".

Among the candidates, there's talk of a 42.76% stake in the Mozyr refinery (one of the country's two oil refineries) being sold together with a stake in MNPZ Plus, a state-run company that controls a 12.25% stake in the Mozyr refinery. Belarus is also apparently ready to negotiate the possible privatisations of Horizont Group, a producer of household appliances, and Transaviaexport, the commercial cargo carrier, as well as a 25% stake in BATE, producer of starters and alternators for engines. Moreover, the government has announced plans to sell in the near future a stake in state-controlled MZKT, the military vehicles producer.

Experts consider the latest privatisation moves an attempt to show the government's readiness for structural economic reform, a necessary step in order to negotiate new loans with multinational lenders, such as the International Monetary Fund and the bailout fund of the Russian-led Eurasian Economic Community (EurAsEC).