FOCUS: Rostelecom plans to get full control over Bashkir unit seen attractive

By Yekaterina Yezhova

MOSCOW, Oct 20 (PRIME) -- Russian state-controlled Rostelecom wants to consolidate wireline operator Bashinformsvyaz, in which it currently owns 68.18%. Analysts said the telecom giant is interested in the regional market and may buy the stake in the promising company that has recently been acquired by Gazprombank.

Rostelecom CEO Sergei Kalugin announced the company’s acquisition plans regarding Ufa-headquartered Bashinformsvyaz, the main fixed-line operator in the republic of Bashkortostan on the Volga, in early October. He declined then to provide more details.

“In my view, it might be linked to intention of Rostelecom’s management to consolidate shares in subsidiaries to improve controllability and make the structure more transparent,” Ilya Frolov, senior manager at the research department at Promsvyazbank, told Russian Connection.

In September Moscow-based Gazprombank acquired 17.84% in Bashinformsvyaz from the republic’s government at an auction for 1.33 billion rubles. Alpari’s senior analyst Anna Bodrova said that the deal was probably concluded at that moment because Gazprombank had a required amount of money to buy the stake in Rostelecom’s interests.

Finam Management analyst Maxim Klyagin agreed that the bank would likely re-sell its stake to Rostelecom. “Such acquisition schemes are quite typical, and Gazprombank has already bought some assets for Rostelecom, for example, shares in (broadband group) National Telecommunications,” he said.

The September auction valued Bashinformsvyaz at 7.47 billion rubles, or with a 3.6% premium to the market, Promsvyazbank’s Frolov said. “This is why, when buying the interest from Gazprombank, Rostelecom may offer a premium of 5–10% to the market,” he added.

Bashinformsvyaz provides services of wireline connection in the republic, as well as broadband Internet access and pay television both on corporate and mass markets of the republic. Its fiber optic line stretches over 21,200 kilometers.

According to Bashinformsvyaz’ report for 2013, the company held a 91% share of the republic’s market of fixed-line connection, flat on the year, but down 1 percentage point as compared to 2011.

The company’s share of the local broadband Internet access market was at 51% in 2011–2012, but grew to 52% in 2013. The share on the republic’s pay television market grew to 30% in 2012 and 36% in 2013 from 22% in 2011.

Apart from Gazprombank, Frolov did not see any other large minority shareholders of the Bashkir operator. “We may assume that about 14% of its shares are in free float. Since Rostelecom wants to get control over 100% of the operator, it cannot be ruled out that after the purchase of the stake from Gazprombank, the giant may make a voluntary offer to minority shareholders, which could also have a premium to stimulate demand,” Frolov said.

He said that Rostelecom may spend up to 1.05 billion rubles on the purchase of the Bashkir operator’s shares from minority shareholders. “Considering a modest liquidity of Bashinformsvyaz’ stock, the sale of these securities looks inviting,” Frolov said.

“Another option may be a swap of Bashinformsvyaz’ shares for those of Rostelecom, but with higher organizational costs in view, I don’t think the state-controlled operator will choose this way,” Promsvyazbank’s analyst added.

Vladimir Kapustyansky, a specialist at KIT Finance Broker’s trust management department, said it is still “difficult to say how long the consolidation will take, but it may last up to six months”.

Analysts said that gaining full control over Bashinformsvyaz will be beneficial for Rostelecom. “Stocks of the state-controlled operator are not reacting to the future deal now. Everything will depend on how the company will use the full control over the asset for the development of cellular business and broadband Internet,” Kapustyansky said.

“Bashinformsvyaz’ stocks are of low liquidity, and a speculative rise by 10–15% is possible, but there is no serious ground for this so far,” the specialist said.

Bashinformsvyaz’ common shares closed at 7.62 rubles on the Moscow Exchange with the capitalization at 7.23 billion rubles on October 16.

The Bashkir company’s revenue rose 2.1% in 2013 to 6.3 billion rubles, while its net profit plunged 14.0% to 849 million rubles. Earnings before interest, taxes, depreciation and amortization (EBITDA) fell 3.3% to 2.5 billion rubles. EBITDA margin edged down 2.2 percentage points to 40%.

(41.0450 rubles – U.S. $1)

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