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Articles & publications
14.04.2010
Rostelecom shooting for 7%Vedomosti, Igor Tsukanov
Rostelecom has begun preparations to buy out a 25% + 1 share stake in parent company Svyazinvest from Comstar-UTS. To this end, the company intends to issue bonds worth RUR 30 bln.
Rostelecom is set to issue bonds valued at RUR 30 bln, the director general of Svyazinvest (which owns 51% of the long-distance operator) Evgeny Yurchenko, who heads up the board of directors of Rostelecom, told Vedomosti. The main purpose of the bonded loan, in his opinion, will be to raise the funds needed to buy back Comstar-UTS’s 1 share stake in Svyazinvest.
In October 2009, the Russian Prime Minister Vladimir Putin approved in principle the structure of an asset swap between AFK Sistema (its subsidiary MTS controls Comstar), which provides for Vnesheconombank (VEB) to buy back Comstar’s equity position in Svyazinvest. But the transaction was dragged out as a result of which Svyazinvest proposed to the Telecom Ministry that Rostelecom act as the new buyer, and the ministry agreed.
Rostelecom is to become the hub for creating a unified state operator which is to be formed by merging the assets of Svyazinvest by spring 2011. According to Yurchenko, a decision in principle on repurchasing a blocking stake in Svyazinvest by Rostelecom was approved by the state holding and is expected to be completed before the end of the second quarter of 2010. Sistema is also hopeful that all approvals can be received within the near future, according to AFK representative Yulia Belous. A representative of VEB declined to answer Vedomosti’s letter.
The blocking stake in Svyazinvest was appraised by Ernst & Young at RUR 26 bln. According to Yurchenko, Rostelecom intends to allocate the other RUR 4 bln to rolling out the operations of Sky Line, which is to be merged to the unified operator from AFK Sistema in exchange for a 23.3% stake in MGTS.
According to Yurchenko, the bonds will be issued for a term of at least five years, and the rate should not exceed 7%. Rostelecom is considering the possibility of arranging such a bonded loan and has already carried out a round of negotiations with the consultant banks, an employee of the company’s press service confirmed. But the decision to use this financing mechanism to buy back the 25% + 1 share stake in Svyazinvest and roll out Sky Link will be adopted only after these transactions are approved by the board of directors of Rostelecom, he pointed out.
At present, Rostelecom has no bonds on the fixed income market. If the company were to place bonds today the yield to maturity would be 7.5%, according to Bank of Moscow analyst Leonid Ignatiev. The OFZ yield curve with comparable terms of maturity currently stands at 6.7%, and even the issues of quasi-sovereign borrowers do not trade at a 50 bps spread. But if the placement is held in about two or three months and the key interest rates on the market go down by 50-75 bps, then it would be possible to get 7%, Ignatiev assumes.
Reserve ready
Bondholders and other creditors of Svyazinvest’s subsidiaries involved in the merger process are entitled to demand premature repayment of their debts in the run-up to the reorganization. Rostelecom has a reserve fund of some $800 mln, of which a little less than one half could be used for possible premature settlements with creditors, Mr. Yurchenko says. But all such demands should go through the court, he notes, and the court will enforce them only if it deems that there is a serious risk of a decline in the credit rating of the merged company compared with the borrower’s current rating. This risk is marginal, Yurchenko is confident, since the financial capabilities of the merged Rostelecom will rise sharply, its shares will be listed on all global indices, and their liquidity will be considerably higher than that of Svyazinvest’s current subsidiaries on a standalone basis. The net debt of these companies will also be reduced, he goes on to say, since even now it stands at RUR 100 bln, and will amount to RUR 73-75 by the end of 2010.
Rostelecom, DLD and ILD telecom operator. Shareholders – Svyazinvest (50%), Vnesheconombank (9.8%), Deposit Insurance Agency (DIA) (about 30%). Financial indicators (2009, RAS): revenue – RUR 61.2 bln, net profit – RUR 5.1 bln, aggregate financial liabilities as of December 31, 2009 – RUR 3.87 bln. RTS capitalization - $4.2 bln.
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