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Articles & publications
15.04.2010
Million-dollar optionsVedomosti, Oleg Salmanov, Igor Tsukanov
By the end of June 2010 Svyazinvest plans to launch its options program, the holding’s director general Evgeny Yurchenko told Vedomosti. In early 2010 the board of directors of Svyazinvest recommended that management work out such a program. According to Yurchenko, in May the state holding will select a partner to manage its close-ended mutual investment fund, to which the subsidiaries of Svyazinvest – regional telecommunications operators (RTOs) and Rostelecom – will contribute their shares (common and preferred), which are to be bought back on the open market. The fund will be established in the near future and all of the holding’s subsidiaries involved in the reorganization will be its unit fund holders. Seven RTOs and Dagsvyazinform are to be folded into Rostelecom by spring 2011.
All in all, the holding has decided to allocate USD 370 mln to share buyback options. The number of subsidiary shares repurchased will likely be proportional to the weighting of companies in the total revenue mix of Svyazinvest. After the reorganization these shares will be converted into a 3.5% stake in the merged operator, Yurchenko said.
Based on preliminary date on the revenue of Svyazinvest companies for 2009 and yesterday’s value of their stocks on MICEX, the buyback could be worth from 2.1% (Rostelecom) to 5% (UTK) of the companies’ capitalization. The approximate value of Rostelecom’s shares is equal to 5% of the March value of shares traded on MICEX, while it is 88% for CenterTelecom and 97% for Far East Telecom. These are sizeable funds for the market and could provide serious support for RTO shares, Troika Dialog analyst Evgeny Golosnoy is confident. He advises buying back shares even now, since once the terms are approved for the restructuring of RTO shares these shares could go up in price.
The participants of the program include 350 managers that are members of the board of management of all RTOs, Rostelecom and Svyazinvest itself, as well as managers of branches and managers that have made a major contribution to preparations for the holding’s reorganization. The shares are to be assigned at a fixed price (approximately the same as the selling price on the open market), at which the beneficiaries of the program will subsequently be entitled to buy back shares in the merged operator. Managers will likely be eligible to exercise their options in two stages, after which they will be entitled to dispose of the shares at their own discretion.
According to Ivan Rodionov, a member of the board of directors of Svyazinvest, the board and remunerations committee have not yet reviewed the options program. The program will also have to be approved at a later time by subsidiary boards, he added.
The program will serve as a powerful incentive for managers to work towards raising the capitalization of the merged Rostelecom, Mr. Yurchenko believes. The director general of Svyazinvest also intends to take part in the options program. Mr. Yurchenko has been buying up stocks in the holding’s subsidiaries since 2008 and has accumulated positions ranging from 2-7% in their charter capitals.
The options program does not provide for either the state or Svyazinvest to incur expenses, since all of the funds spent will be recovered by the holding, Yurchenko pointed out.
Management options also exist at other state companies. Thus, the managers of RusHydro and their subsidiaries will be able to buy back 2% of the company’s shares in autumn 2012, and interest-free loans are provided for this purpose (Svyazinvest still has no plans to provide financing to its managers, Yurchenko pointed out). The shares for the program were purchased back in 2007 for RUR 5.56 bln. Inter RAO has an options program, launched in summer of 2008, including over 100 participants, that will receive 2% of the company’s treasury shares.
Revenue breakdown
Rostelecom accounts for 23.6% of the aggregate revenue of Svyazinvest companies in 2009. The proportion of Uralsvyazinform was 15.7%, while CenterTelecom contributed 14.1%, Sibirtelecom 10.8%, VolgaTelecom 10.5%, North-West Telecom 10.1%, UTK 8.4% and Far East Telecom 5.2%.
Svyazinvest, holding company. Shareholders – State Property Management Agency (Rosimushestvo) (75% - 1 share), Comstar-UTS (25% + 1 share). Financial indicators (2009, aggregated RAS data): revenue – RUR 258.8 bln, net profit – RUR 27.9 bln.
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