Ukrtelecom strips out mobile business

Ukrtelecom (UX: UTLM UK, BUY), Ukraine’s incumbent telecom operator, established a subsidiary to operate its mobile telecommunications business, the company reported yesterday. The company’s new majority shareholder announced plans to spin off the mobile division in mid-June. The State Property Fund, which has to approve any spin-offs and subsidiaries, according to privatization terms, approved creation of the mobile subsidiary earlier this month. Should shareholders decide to sell the subsidiary, they would have to receive a permit from the State Property Fund. The Ukrainian government sold its 92.8% stake in Ukrtelecom in February, with Austrian investment firm EPIC spending UAH 10,575 mln for the stake (UAH 0.609 per share). Yegor Samusenko: We maintain our view that the spinning off of its mobile business will likely have a positive effect on Ukrtelecom. The reason is that we see the Ukrainian mobile market as mature and Ukrtelecom has only been able to claim a mere 1.2% market share over five years. Thus, in our opinion, the only option the company has is to sell the network and UMTS license to an existing mobile telco. Though the effect for minorities will depend on the sale price, we note the company would likely be able to attract cash needed for CapEx to boost its leadership positions in broadband. The State Property Fund valued Ukrtelecom’s mobile unit at 6% of its total value, which is UAH 635 mln using the privatization price as a guide. Ukrtelecom plans to invest UAH 3.2 bln in development in 2011-2013. We maintain our positive view on Ukrtelecom though we only recommend it to investors willing to bear restructuring risk and look at the longer horizon required for restructuring benefits to show up in financial results.