Ukrtelecom bought by SCM, Ukraine

SCM Group, Ukraine’s largest holding company, signed on June 3 an agreement with Austria-registered EPIC to purchase Cyprus-registered UA Telecominvest, the owner of ESU, which in turn is the owner of a 92.8% stake in Ukrtelecom (UTLM UK), the leader in Ukraine’s fixed-line market. Neither side revealed the deal’s price in a joint press release issued on June 5.

In March 2011, the Ukraine-registered company ESU, then owned by Cyprus-registered EPIC Telecom Invest, purchased the state’s stake in Ukrtelecom for UAH 10.575 bln. EPIC Telecom Invest transferred its corporate rights in ESU to UA Telecominvest in January 2013.

SCM already controls several assets in Ukraine’s telecom industry, including second-largest fixed-line operator Vega and indirect ownership in Ukraine’s third-largest mobile operator, Astelit (Life).

Following the news release, Ukrtelecom stock advanced 15% yesterday to cross UAH 0.15 per share for first time in the last four months, while it still trades at a 75% discount to the price at which ESU bought Ukrtelecom in 2011.

Alexander Paraschiy: A possible merger with SCM’s fixed-line operator will create clear synergies, while SCM’s Astelit might be able to use more efficiently Ukraine’s only 3G mobile license, which is owned by Ukrtelecom. Both SCM’s telecom assets and Ukrtelecom were underinvested by their main shareholders over the last couple of years. The large scope of this deal indicates that SCM will prioritize its telecom operations. Therefore, we expect more investment in developing Ukrtelecom and other SCM telecom assets.

Another encouraging outcome from the deal is that Ukrtelecom’s ultimate ownership is clear now. Austria-registered EPIC, which had claimed it was the sole investor in Ukrtelecom in the 2011 privatization tender, was widely believed to be acting in the interest of a third party. Therefore, there was little comfort in the investment community about the intentions of this third party and Ukrtelecom’s future.

The change in Ukrtelecom’s ultimate ownership will have no impact on minorities in the short term as the deal does not require a mandatory offer to purchase of Ukrtelecom’s minority stake.