Citi says Sistema may lose control over MTS due to Rosneft’s suit

MOSCOW, Jun 29 (PRIME) -- Russian multi-industry holding Sistema may lose control of mobile operator MTS because of a 170.6 billion ruble lawsuit filed by oil majors Rosneft and Bashneft, under which a court seized 185 billion rubles worth of Sistema’s assets, Citi said on Thursday in a research note.

“We believe that viewing this situation as a pure financial claim that Sistema could easily settle

may be too narrow…We think that investors should brace themselves for the possibility of future change in MTS control; this may take time and bring uncertainties and it is too early to talk about specific implications,” Citi said.

“The arrest of Sistema’s stake and dividends, unless reversed, makes it in our view hard to assume that Sistema would raise cash for the Rosneft claim, if needed, on the back of MTS dividends. Hence, unless the claim/arrest is annulled, Sistema could have to sell its assets, including its MTS stake. Given the political climate in Russia we would see potential state-linked acquirer for MTS control as relatively likely.

“Such a move would prompt questions about dividends, management stability, commercial, operational, strategic and digital competitiveness, and M&A. We see risks in the following areas: (1) Transition period, when MTS ownership and dividend policies may stay intact, but may be perceived at risk; (2) Potential changes in strategy, dividends and efficiency post control change, this may also entail M&A; (3) Overall impact of potential deeper state involvement in the Russian telecom comanies. It is in our view too early to attach likelihood to this or outline specific scenarios.”

(59.5415 rubles – U.S. $1)

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