MTS could buy India's SSTL after it reaches 150 mln subscribers
MOSCOW. April 20 (Interfax) - AFK Sistema is prepared to sell a controlling stake in Indian subsidiary Sistema Shyam TeleServices Ltd. (SSTL) to Russia's Mobile TeleSystems (MTS) , which it also controls, once the Indian company's subscriber base reaches 150 million users.
"We'll do this if we manage to reach critical mass - about 150 million subscribers. Then this would make sense," Sistema principal owners Vladimir Yevtushenkov said in an interview with Forbes magazine in response to a question about whether Sistema is considering selling SSTL to MTS.
SSTL's report for 2011 shows that the company's subscriber base is still only a tenth of the target figure: it was 15.02 million at the end of the year. SSTL now has more than 16 million subscribers, Sistema's press service said.
SSTL works under the brand name MTS in line with a commercial agreement with another AFK subsidiary - Mobile TeleSystems (MTS Sistema owns 56.68% of SSTL, the Russian State Property Management Agency Rosimuschestvo owns 17.14%, India's Shyam Group holds 23.98% and there is a free float of 2.2%. The Russian government became a SSTL shareholder in 2010, investing around $600 million.
Shareholders are preparing a new issue of SSTL preferred shares, which will double charter capital to $3.6 billion while maintaining the stakes of shareholders.
Sistema has repeatedly said that it does not plan to sell its stake in the Indian company to MTS. However, Yevtushenkov said that Sistema intends to transform MTS into a global player with 200 million-300 million subscribers, and the Indian market could be involved in this process. In the Forbes interview, he confirmed that creating a global company is still on the agenda, but on the condition that Sistema retain control. As an opposing example, he cited Vimpelcom Ltd., where the largest stake and operational control ended up with Norway's Telenor rather than Russia's Alfa Group.
Sistema president Mikhail Shamolin said at the end of 2011 that SSTL could only become attractive for MTS once it becomes profitable. This could happen in 2014, he said.
For now, the company remains in the red. SSTL closed 2011 with a consolidated net loss of INR35.3 billion (about $750 million), up 60% from a year earlier. The OIBDA loss rose 26% to INR18.93 billion ($402 million), while revenue grew 140% to INR12.35 billion ($263 million). The OIBDA margin increased by 134 percentage points last year, but remained negative at minus 153%.
SSTL's financial results were adversely affected by provisions made as part of its court battle with the Indian authorities over the cancellation of licenses.
India's Supreme Court in February 2011 cancelled the mobile licenses of eleven operators, including SSTL, who had received them after 2008. SSTL, along with the other companies, appealed the ruling. The Supreme Court is now considering an appeal filed against this ruling by the Indian government, which is asking that the cancellation of the licenses be postponed until March 2013 so that new auctions can be held to distribute the licenses.
Under the current court ruling, Shyam's license expires on June 1, and if it is not overturned the operator will have to stop providing services.
Despite the difficulties, Sistema said after the license ruling that it does not intend to leave the Indian market and would bid in future tenders if such are held. Nonetheless, the company expects to receive compensation and is prepared to defend its position in court. Sistema has invested more than $2.5 billion in SSTL since becoming a shareholder in 2007, including about $630 million spent on the licenses received in 2008.
Vedomosti, citing sources, reported on Friday that Sistema plans to write-off a paper loss of $1 billion from fourth-quarter profits due to the problems of the Indian business. Sistema's press service declined to comment on this, saying that the company's financial statement for 2011 would be released on April 26.
