MTS Says Expansion Plan Won’t Require New Debt

OAO Mobile TeleSystems (MBT), Russia’s biggest mobile phone company, will be able to expand its operations at home and in central Asia without taking on more debt, said Vasyl Latsanych, the vice president of marketing.

“We are very comfortable about our debt level and there is no reason for us to increase it,” Latsanych said in an interview in New York yesterday. “Russia and the former Soviet states remain our focus because of strong growth there.”

MTS, as the mobile operator is known, reduced its debt to $8.1 billion at the end of the first quarter from $8.7 billion last year, according to data compiled by Bloomberg. The Russian company will restart operations in Turkmenistan by October after its permit was revoked there last year and is trying to reinstate its license in Uzbekistan, Michael Hecker, the vice president of strategy at MTS (MTSS), said in an interview.

American depositary receipts of MTS have increased 30 percent this year, leading gains on the Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in New York. The measure fell 0.7 percent to 91.95 yesterday, while RTS stock-index futures expiring in September retreated 0.3 percent to 138,705.

MTS, which received 85 percent of its sales from customers in Russia last year, will continue to benefit from higher consumer spending as the company expects the $1.5 trillion economy to expand as much as 4 percent in 2012, Hecker said.

Russia, the world’s largest oil producer outside of the Organization of Petroleum Exporting Countries, received about half of its 2011 budget revenue from sales of oil and natural gas last year. The economy grew 4.9 percent in the first quarter from a year earlier, the fastest pace since the three months ended September 2011.

‘Strategically Right’

The euro area’s economy is expected to shrink this year for the first time since 2009, contracting 0.4 percent, according to the median forecast of 35 analysts surveyed by Bloomberg.

“It would be strategically right for MTS to get an exposure to central or eastern Europe one day,” Latsanych said. “Poland, Slovakia, Czech Republic and Bulgaria are among the most interesting countries” in the region, he said.

Yields on MTS 2020 dollar notes fell seven basis points to 6.12 percent yesterday, the lowest since July 20. The company still borrows to refinance some of its existing debt, Latsanych said.

“MTS’s debt is at a very healthy level,” Iouli Matevossov, a senior analyst at Alfa Bank, said by phone yesterday from Moscow. “It would make sense for them to increase the debt level only if they were to purchase some European telecom company.”

‘Outlook Is Uncertain’

First-quarter net income climbed to $512 million from $322 million a year earlier, the company said in a May 21 statement. That beat the average estimate of $395 million of nine analysts surveyed by Bloomberg.

In Central Asia, Uzbekistan prolonged a suspension of MTS’s local unit’s license for three months from July 30, according to an e-mailed statement yesterday. Uzbekistan hasn’t given the company a chance to defend its interests in accordance with the central Asian country’s laws, MTS said in the statement.

Uzbekistan arrested last month the interim director general of MTS and four other employees of the company. The government froze the company’s license on July 17, saying MTS violated its permit and didn’t pay enough taxes.

MTS is trying to get its five employees out of detention in Uzbekistan, Hecker said. “The outlook is uncertain,” Hecker said.

In Turkmenistan, where MTS’s permit was halted last year, the company expects to restart its network in September or October, Hecker said.

ETF Declines

American depositary receipts of MTS lost 0.1 percent to $19.14 in U.S. trading yesterday, dropping for the first time in three days. MTS rose 0.9 percent to 245.42 rubles in Moscow, or the equivalent of $7.63. One ADR is equal to two ordinary shares.

The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, sank 1.1 percent to $26.92 yesterday, declining for the first time in four days after oil retreated. The RTS Volatility Index, which measures expected swings in the index futures, rose 2.2 percent to 33.24.

Yandex NV (YNDX), the owner of Russia’s most-used search engine, rose 3 percent to $20.83, the highest since May 29. The company reports its second-quarter financial results in Moscow today.

Oil for September delivery retreated 0.4 percent to $89.78 a barrel on the New York Mercantile Exchange yesterday, falling for the first time in five days. Prices have fallen 9.2 percent this year.

Brent for September settlement dropped 0.3 percent to $106.20 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s main export blend, declined 0.3 percent to $106.14 per barrel, falling for the first day in five.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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