17 October 2011
Kyivstar, Astelit, MTS and Rostelecom are potential bidders for Ukrtelecom’s (UX: UTLM UK, BUY) mobile division, daily Kommersant reported on Friday. According to unnamed Kommersant source, the selling price is USD 250 mln to USD 500 mln. The company’s majority shareholder announced it planned to spin off the mobile division in mid-June. Yegor Samusenko: We keep our view that spinning off the mobile business will likely have a positive effect on Ukrtelecom, even if the price is as low as USD 100 mln (in our model, we assume closure of the mobile business by the end of 2012 and sale of the division at the nominal price of CapEx incurred in 2006-2010 of USD 110 mln). The logic for Ukrtelecom’s exit from mobile segment 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.