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EFinancialnews.com
March 25, 2002
Letter from Moscow
By Gerard O'Dwyer
The quaint Soviet era maxim that 'Moscow is the mirror of the Russian soul' has special relevance as spring hits a capital in profound and unstoppable change. The Russian economy may still be as mercurial as ever, yet there is a fresh bounce in Moscow's step. For the first time in modern memory, and lip service apart, Russia's largest cash-heavy corporations are hungry for cross-border expansion.
Emerging from the mists of this new era of confidence are corporations such as Yukos, Russia's second-largest petroleum enterprise, and Mobile TeleSystems (MTS), the stock market's darling.
Yukos signalled its international intentions by bidding to take over cash-starved Kvaerner Group's European Hydrocarbons and Process Technology business last autumn. While Yukos may be the company all analysts love to praise, it lacks the golden boy status of MTS, the Moscow-based mobile telecoms group 51% owned by Deutsche Telekom.
MTS has become synonymous with the 'new Russia', a forward-looking, competently managed and progressive entity with an unbending focus on growth through strategic acquisitions.
On March 19, MTS issued an additional $50m (€56.5m) Eurobond through Mobile TeleSystems Finance, its wholly owned Luxembourg-based subsidiary, bringing the three-year Eurobond total scheduled to mature in December to $300m.
With an annual coupon yield of 10.95%, the notes, listed on the Luxembourg Stock Exchange, were issued at a price of 101.616% and carry a yield to maturity of 10.248%.
Alexey Buyanov, MTS's vice-president for investments and securities, was unsurprisingly sanguine in his analysis. 'Our initial $250m Eurobond issue in December was an outstanding success.
That inspired MTS to place a further $50m in Eurobonds in a favourable market,' he said. MTS is expected to return to the Eurobond debt market later in the year to raise capital to fund ongoing GSM network projects.
A large part of the proceeds from MTS's December issue was used to finance the 51% acquisition of Kuban GSM, Russia's fourth-largest cellular operator, in a move that opened up Southern Russia and the Black Sea region to the group. That majority equity stake cost MTS $140m.
Additionally, MTS has first refusal on outstanding shares in Kuban GSM, Russia's largest cellular operator outside Moscow and St Petersburg. If nothing else, the acquisition of Kuban GSM sets out MTS's stall in expanding out of its Moscow home-base to Russia's largely untapped provinces, bringing the company into direct competition with Russia's three leading mobile operators, Vimpelcom, Sonera, and MegaFon.
MTS's ascending star is such that the market moved to applaud the price paid by MTS for Kuban GSM, even though the deal valued the target mobile operator's subscribers at $375 apiece. By contrast, earlier sales of cellular companies in the same region, valued their subscribers at $300 apiece.
'Internationalisation' is the latest buzz-word to surface from MTS. CFO Alexei Buyanov characterises the mood at MTS as one of 'growing international ambitions'. Analysts believe MTS will move on Europe, but not any time soon. The smart money is on it building its empire in Russia, and in former Soviet states.
Underpinning investor confidence in MTS is the happy camper value in shareholders Deutsche Telekom and AFK Sistema, which co-founded MTS in 1993 and each hold 42-43% of the shares. Neither company has shown any interest in divesting or diluting its holdings.
Keep a watchful eye on MTS. Its star may not be visible in the West, but one day, its trail may take it to a sky near you.
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