Rostelecom shares jumped 17% in June amid statements from senior Russian officials that the Russian national telecommunications operator might be at least partially privatized.
The Russian Federal Government owns a controlling stake in Rostelecom, 53.23%, through the auspices of state owned telecom holding Svyazinvest and investment corporation Vnesheconombank. Rostelecom recently completed a large reorganization and merger process with regional affiliates formerly controlled by Svyazinvest.
Speculation on stock exchanges began on June 17 immediately following a statement from Head of the Property Department of the Ministry of Economic Development Alexey Uvarov, who said informally that privatization of the enlarged Rostelecom would be logical.
Uvarov’s statement was in line with previous statements from top officials, such as First Deputy Prime Minister Igor Shuvalov and the head of the Ministry of Finance Alexey Kudrin who said, in October 2010, that partial privatization of Rostelecom could be held in 2013. The talk also corresponds to Dmitry Medvedev’s larger privatization strategy for most state owned companies that the Russian President has expressed repeatedly in recent months. In particular, a 7% stake in state controlled Sberbank, the national savings bank, could be offered on the market this fall.
Minister of Communications and Mass Media Igor Shchegolev expressed more cautious views, however. He told journalists at a forum held in St. Petersburg at the end of June that Rostelecom’s denationalization should be discussed after the company completely completes its restructuring process.
The imminent privatization of Rostelecom is unlikely in the short term, write analysts of Aton, a leading Russian financial company. The fact that Rostelecom provides services to Russian defense structures could postpone, if not block, the privatization. The presidential elections in March, 2012 could also delay discussions about privatization until the second half of next year.
Despite these potential roadblocks, Aton remains optimistic about the privatization of Russia’s largest telecommunications provider in the mid term, pointing out that some Western governments have found that holding a minority stake is sufficient to maintain effective control: the German government has no more than a 15% stake in Deutsche Telecom and the French state owns just 27% of France Telecom.
Aton expects that the privatization of Rostelecom could take place via a merger with MegaFon, one of the country’s top mobile operators. The two companies would compliment each other ideally: MegaFon needs a fixed line division to compete with VimpelCom and MTS, the nations’s two other leading mobile operators, while Rostelecom needs a mobile branch to realize its universal ambitions.
Aton estimates that MegaFon’s current shareholders, including Altimo, TeliaSonera and AF Telecom controlled by government-friendly tycoon Alisher Usmanov, could receive about 40% in a union between Rostelecom and MegaFon, with the state retaining a blocking stake. The merger would double Rostelecom’s business in terms of revenue, giving it a profile comparable to European operators and potentially driving its valuation as mobile companies usually trade at higher multiplies, Aton concludes.
Another scenario suggested by Aton envisions a share acquisition by AFK Sistema, who has already expressed interest in Rostelecom. This diversified conglomerate controlled by prominent businessman Vladimir Evtushenkov already owns a controlling stake (50.8%) in MTS, another leading Russian mobile operator.
Sources: ComNews, RIA Novosti, Aton
Update August 17, 2011
According to Russian business daily Kommersant, the Ministry of Communications and Mass Media has acknowledged that the privatization of Rostelecom could not possibly be go forward before 2013, after its merger with Svyazinvest, after which the Russian state will own its stake in Rostelecom directly.
