Russian mobile major MTS said to be selling its Ukrainian division to Azeri AzInTelecom

By bne IntelliNews July 19, 2019

Russian mobile major Mobile TeleSystems (MTS) is considering selling its Ukrainian business Vodafone Ukraina to Azeri state-owned AzInTelecom or Azercell, Лiга.net and RBC business portal reported on July 18 citing unnamed sources.

Apparently the asset could be sold for $700mn. The parties have completed due diligence stage and have signed a binding agreement, although Azercell denied the report.

"The credibility of the news is not a given, but as Ukraine is much smaller than MTS’ Russia business, we would not rule out a sale at an attractive valuation," BCS Global Markets commented on July 18.

BCS GM do not rule out the sale, but at an attractive valuation, as analysts do not see any need for MTS to sell the unit. The Ukraine unit of MTS is relatively small (8% of the group’s Ebitda in 1Q19), but is "showing nice growth driven by increasing data consumption in the country," BCS notes.

"MTS’s leverage is also comfortable even after paying the fine related to Uzbekistan," BCS writes referring to the recent settlement on Uzbek assets.

However, BCS GM argues that the price of $700mn mentioned in the news sources is below what the analysts would deem fair, which is $1.1bn-$1.3bn enterprise value (estimated 2019 enterprise value to Ebitda of 4.5-5x). 

In 1Q19 in Russia MTS posted revenue growth of 8%, out of which mobile service revenue increased by 1.5%, and sales of goods (incl. handset sales) were up 7%. Ebitda in Russia grew by 4%, making a 47% margin. In Ukraine, revenues and Ebitda jumped by 19% in local currency terms.

As reported by bne IntelliNews, MTS is Russia's most valuable telecom brand. The company has closed a deal with Chinese Huawei for the pilot launch of 5G networks in Russia in 2019-2020.

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