Page 5 - bne_Tech_07_2019

Leaders
July 2019 www.intellinews.com I Page 5
Russia's Rostelecom restructures to get control in Tele2
Russian state-controlled integrated telecom major Rostelecom could issue up to 20%
of new shares, and together with treasury shares swap it for 55% stake in Tele2 mobile operator, Kommersant daily reported on July 5 citing sources in the federal government.
Last month the head of Rostelecom Michael Oseevsky said the takeover of Tele2 is planned by the end of 2019. Oseevsky assured that Tele2 will remain an independent company with the existing management, and the revenues of the combined company will be about RUB500bn.
Rostelecom currently owns 45% of Tele2. The rest is owned by Tele2 Russia Holding AB, in which state-controlled VTB Bank holds 50%, Invintel BV Alexey Mordashov 40% and 10% belongs to the Bank of Russia of Yuri Kovalchuk and his partner.
The value of the 55% stake is about RUB70bn ($1.1bn). "Rostelecom will pay through cash, treasure shares and newly issued shares, which will provide VTB a stake in a large public company [Rostelecom] vs it’s current share in a small private
company [Tele2]," BCS Global Markets commented on the benefits to VTB Bank from the swap.
For Rostelecom, the issue would lead to about 17% dilution for commons in value terms, while minimum Tele2 valuation (RUB130bn for 100%) is above what BCS GM considers fair. However, some support could come to Rostelecom in the form of Tele2 dividends.
Tele2 and Rostelecom united their GSM assets in 2014 by creating the T2 RTK Holding joint venture that later began operating in the Moscow region as a discount operator. Already back in 2017 Rostelecom said it will seek full control in Tele2, after Michael Oseevsky, ex-chairman of VTB, was appointed CEO of the state-owned operator.
While initially takeover plans were met cautiously by analysts, in 2018 the joint venture with Tele2 turned a corner and went profitable, while contin- uing to decrease leverage. In 1Q19, Rostelecom's share in the increasing profit of Tele2 mobile subsidiary pushed the parent company's IFRS net profit by 46% year-on-year and 140% quarter-on- quarter to RUB5.6bn ($86.4mn).