FOCUS: Fully Russian status reduces multiple external risks for VimpelCom

By Yekaterina Yezhova

MOSCOW, Oct 16 (PRIME) -- VimpelCom, working under brand Beeline, is now an entirely Russian mobile operator after Dutch holding company VEON closed its sale to the local top management in a move that will curb many a risk for the operator, analysts said.

“The status of a Russian company for VimpelCom primarily means its re-registration in the Russian jurisdiction and, as a consequence, smaller risks of external pressure, blocking or freezing of assets,” Freedom Finance Global analyst Vladimir Chernov told PRIME.

“The possibility of dividend payments will appear that will boost investment attractiveness of the company’s shares on the Russian stock market. Difficulties with coupon payment on the bonds will be solved after they have become technically impossible amid the external restrictions.”

Dmitry Puchkaryov, a stock market expert at BCS World of Investment, said a Russian company status will benefit business-to-business and business-to-government segments, “the risks related to foreign ownership fade away.”

VEON on October 9 said it had completed its exit from Russia with closing the sale of VimpelCom to a group of senior managers led by General Director Alexander Torbakhov.

The holding company added that the deal does not imply any buyback arrangements that means VEON left the Russian market completely.

“Beeline has always been an independent company, not merely part of the international group, but now everything depends on us 100%. It mainly opens new opportunities for the company. We are now free from the restrictions and will become more mobile and open for partnerships in our country,” Torbakhov said in a statement.

Chernov does not think the top managers bought the company to re-sell it.

He added that VimpelCom was valued at 370 billion rubles, including net debt as part of Veon Holdings’ total net debt of 240 billion rubles, which translates into the final size of the deal of 130 billion rubles that VimpelCom was to spend on the buyback of VEON’s bonds from Russian holders.

“The terms can be seen as artificially low because the company’s business could cost about 600 billion rubles,” the analyst said.

VimpelCom said that fulfilling the decision of a sub-commission of the government’s commission on control over foreign investment, the operator acquired over 96% of all VEON’s bonds in the country, including over 99.6% of all VEON’s bonds registered with the National Settlement Depository.

The operator expects that its net debt-to-EBITDA ratio to stay below 2.9x as of the end of July–September “and it will not rise above 2.6x after full closure of the deal that shows a comfortable level of the debt burden for the company enabling it to implement successfully its capital investment program,” the company said.

“The sale of a foreign business to the company’s top managers from this region is a widely spread practice because the experienced team keeps on running the same direction and the company’s business model stays unchanged. Besides, it is always much easier to settle all terms of the deal with the top managers of a former unit,” Chernov at Freedom Finance Global said.

“When selling a business to direct competitors, in this case telecom companies, the regulators, in particular the Federal Antimonopoly Service, can have concerns. At that, in the current situation, a foreign business can be sold in Russia only with a 50% discount under the president’s decree, this is why firms are unwilling to sell it to archrivals, mainly if the deal stipulates a possible buyback. But in this case VEON does not leave this chance and quits the Russian market fully.”

Puchkaryov at BCS also said that the local management is familiar with the business and understands the asset’s value. “Acquisition of VimpelCom by large operators could have raised questions on behalf of the Federal Antimonopoly Service,” he told PRIME.

The analyst added that VimpelCom has not had impressive operating results in recent years and the company will have to focus on attracting and retaining clients.

“It may imply higher capex in the next few years. The debt burden is close to the upper end of the comfortable zone, this is why the firm will unlikely manage to stimulate its development with new debt,” Puchkaryov said.

(97.3075 rubles – U.S. $1)

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