FOCUS: MTS informs JPMorgan of ADR end, may eye other listing location

By Yekaterina Yezhova

MOSCOW, Jun 20 (PRIME) -- Major Russian mobile operator MTS has notified its depositary JPMorgan Chase Bank of completion of its American depositary receipt (ADR) program by July 13, and analysts said the owners ñould have problems with conversion while MTS may think of other listing.

“MTS applied to its depositary to terminate its ADR program after July 12. Since that moment, circulation of the receipts will end, and its owners will be able to convert them into local shares within six months. MTS does not participate in this process actively but is an observer. The company has no intention to buy any shares,” investment company Veles Capital analyst Artyom Mikhailin told PRIME.

JPMorgan is to notify the ADR owners of termination soon.

MTS had to end the program in compliance with the Russian law, in force since end April, that obliges the country’s companies to terminate their depositary receipt programs unless granted an exemption by the government’s commission that monitors foreign investment. The operator asked the commission in May for the exemption, which was given through July 12.

The operator’s ADRs closed at U.S. $5.50 at the New York Stock Exchange (NYSE) on February 25, the last trading day. An ADR has two underlying shares.

“The receipts accounted for about 25% of MTS’ capital and more than half of the trading volume. It is impossible to recover this liquidity in full at present. Access to the foreign floors is also a source of additional investment and a story for the company’s reputation,” Mikhailin said, adding that it is hard to find any advantages in the retreat from the NYSE.

MTS’ free float accounts for 42.2%, including 25.47% in ADRs and 16.74% in shares.

Vasily Karpunin, head of news and research content at BCS World of Investment, said that conversion into the shares could theoretically result in an excess of sellers, but everything will depend on how the procedure will pass.

The process seems to be problematic both for foreign and Russian owners. “The non-residents will be able to get local shares instead of receipts, although their securities will be put on the accounts separated from the rest of the market. Even if they sell the shares, they cannot withdraw money now,” Mikhailin said.

“The Russian residents will be probably unable to convert the securities because their applications will be blocked by Euroclear under the sanctions and the broken bridge with the National Settlement Depository (Russia’s central securities depository).”

The Veles Capital analyst assumes that the MTS group may be in talks with the representatives of possible new listing locations.

“The operator will unlikely reject the advantages of a foreign listing. But it will take much time and stabilization of the political situation. This is why it will take over a year. We should also keep in mind that, for example, the Asian investors are not very familiar with our market, they will need time to get adapted,” Mikhailin said.

Karpunin said that MTS’ local shares have been in high demand thanks to their generous dividend yield, which exceeds 12% at the current quotes.

MTS’ ordinary shares rose 0.1% over a week and 26.3% over a month closing at 274.70 rubles on June 17 on the Moscow Exchange.

(56.7101 rubles – U.S. $1)

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