Monday, 14 January 2008

Sistema views India as stepping stone in global telecoms push

Financial News

Jason Corcoran in Moscow

14 January 2008

Russia’s mergers and acquisitions activity has been dominated by the energy sector but a plan by conglomerate Sistema to invest up to $7bn (€4.8bn) creating an Indian mobile network is a sign the country’s M&A boom will be more broad-based this year.

Alexander Goncharuk, Sistema’s president and chief executive, said the company’s plans for India represent its first step in becoming a global telecoms group and follow Sistema’s acquisition of a controlling stake in Indian operator Shyam Telelink.

Goncharuk said the Russian Government had helped arrange the deal and was actively supporting the creation of Russian transnational champions. He added: “Of course, we got support from the Russian Government, particularly during the governmental meetings between Russia and India. It is a positive example that our Government finally starts to support domestic business.”

Sistema last month received approval from India’s Foreign Investment Promotion Board to increase its stake in Shyam from 10% to 51%, with an option to raise to 74%.

Goncharuk said Sistema would invest $4bn to $7bn in building a national Indian mobile network to compete with the UK’s Vodafone, which spent $11bn last year to take a controlling stake in Hutchison Essar, India’s fourth-largest mobile operator.

He said: “If you want to be an operator across India, the entry ticket is several billions – $1bn is not enough. That is the first step and our specialists estimate we will need between $4bn and $7bn to roll out a national network.”

Goncharuk said Sistema would resist calls to list the company made by Shyam’s minority shareholders at December’s annual meeting or buy them out.

Global expansion is Sistema’s main strategy. The group owns Russia’s biggest mobile phone operator MTS, with fixed operators Comstar and MGTS. It is scouting for M&A opportunities in developed markets, despite the German Government scuppering talks about an asset swap with Deutsche Telekom in 2006.

Goncharuk said: “We are looking at companies for acquisition and not at particular markets. With existing technologies, I would not advise anybody to build a new mobile telecommunications network in Germany, for example. On the other hand, there are successful examples of small local discounters in developed markets – ePlus in Germany and Tele2 in Russia.”

Sistema has sold shares in four subsidiaries: mobile operator MTS, in which it retains a 53% stake; fixed-line provider Comstar, with a 59% retained stake; property arm Sistema-Hals with 80% and technology company Sistronics with 85%.

Goncharuk said the group will consider listing its other companies, such as Moscow Bank for Reconstruction and Development and retailer Detsky Mir, when they increase in value. A merger of its fixed and mobile operators is also on the cards. He said: “Merging Comstar and MTS is something that we are looking at and might be inevitable but it is for the mid-term.”

Tougher listing requirements for foreign companies on the London Stock Exchange will not present a problem for Sistema, according to Goncharuk. He said. “We have five listed companies and we listed MTS and VimpelCom in New York and they have stricter regulations under the Sarbanes-Oxley Act. Anyone who has lived under Sarbanes-Oxley is prepared for London’s new regime.”

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