MTS Trades at Discount as Uzbeks Seize Unit: Russia Overnight
OAO Mobile TeleSystems (MBT), Russia’s biggest mobile phone company, sank in New York to trade at a discount to competitor VimpelCom Ltd. for the first time in two years after Uzbekistan moved to seize its subsidiary.
The phone company, known as MTS, tumbled 3.6 percent to $18.48 in New York yesterday, sending valuations to 11.57 times earnings, below the 11.52 multiple for VimpelCom for the first time since May 2010. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in New York halted a four-day rally as futures expiring in December on the dollar-denominated RTS index lost 1.5 percent to 155,020 in New York yesterday.
The criminal court in Tashkent, Uzbekistan, said the state can nationalize Uzdunrobita, the mobile phone company owned by MTS, the Russian company said in a statement yesterday. Uzbek authorities earlier froze $700 million of the unit’s cash and property, according to the statement. MTS lost its license in Turkmenistan in 2010 before restarting operations in the central Asian country last month.
“The events in Uzbekistan just serve to remind investors of the higher risk and cost of doing business for foreign listed companies operating in central Asia,” Simon Mandel, the director of emerging Europe equity sales at Auerbach Grayson & Co. in New York, said by e-mail yesterday. “Another risk for MTS could come from additional charges such as retroactive tax claims or fines by the Uzbek government.”
The Market Vectors Russia ETF (RSX), the biggest U.S.-traded exchange-traded fund that holds Russian shares, fell 2.1 percent to $30.33. The RTS Volatility Index retreated 0.2 percent to 31.20.
American depositary receipts of MTS plunged the most since June 21 in New York yesterday. The stock fell 2.3 percent to 236.62 rubles in Moscow, or the equivalent of $7.73. One ADR is equal to two ordinary shares.
The mobile phone provider has invested $1.5 billion in Uzbekistan since 2004 and wrote off $579 million in Uzbekistan- related assets in the second quarter. The company had its license frozen by local authorities on July 17, following accusations the local subsidiary violated its permit and didn’t pay enough taxes.
“MTS reserves the right to use all legal options, primarily in the international arena, and initiate proceedings against officials involved in illegal actions against the company,” the company said in an e-mailed statement yesterday.
VimpelCom (VIP), the world’s sixth-biggest mobile phone company, dropped 1 percent to $11.83 yesterday.
The commpany’s subsidiary Orascom Telecom Holding SAE (ORTE) is disputing the $1.3 billion fine imposed by an Algerian court against its Djezzy unit for allegedly violating foreign-exchange regulations, according to an April 12 statement. Algeria has sought control of Djezzy since 2010, freezing money transfers and bank accounts and asking the unit to pay back-dated taxes.
“With MTS trading at cheaper valuations than VimpelCom we still see the company as an attractive option on telecom growth in the CIS region, especially given Vimpelcom’s troubled Middle East exposure and Algeria overhang,” Mandel said.
OAO Sberbank, Eastern Europe’s biggest lender, fell 2.1 percent to $12.42, the most since July 30. The stock declined 1.4 percent to 95.68 rubles, or $3.13 in Moscow yesterday.
Russia’s central bank is selling 7.6 percent of OAO Sberbank for at least 156 billion rubles, or $5.1 billion. Bank Rossii is offering the equivalent of 1.71 billion shares in ordinary and global depositary stock at a range of 91 rubles to the market price at the time the order book closes, the central bank and Sberbank said in a statement yesterday.
MD Medical Group Investments Plc, Russia’s largest private chain of maternity centers, is seeking to raise at least $150 million through an initial public offering in London, the company said yesterday in a statement.
“There will be more selling as in the presence of QE3 and a fund purchasing mechanism in Europe equity investors will look to buy Russia,” Ian Hague, the founding partner at Firebird, which manages $1.3 billion, said in a phone interview from New York yesterday. “People who were holding back will be getting in now as Russia is among the cheapest and most liquid BRIC markets.”
Russia’s 30-stock, ruble-denominated Micex Index (INDEXCF) sank 0.3 percent to 1,530.36 yesterday. The Micex trades at 5.86 times analysts’ earnings estimates for member companies. That compares with a valuation of 13.75 for companies on Brazil’s Bovespa index, a ratio of 9.53 for the Shanghai Composite Index and 14.66 for the BSE India Sensitive Index.
Oil, Russia’s major export, dropped the most in eight weeks in New York yesterday as crude options for the October futures expired.
Oil for October delivery tumbled 2.4 percent to $96.62 a barrel on the New York Mercantile Exchange, the largest decline since July 23. The futures expire on Sept. 20. Prices are down 2.2 percent this year.
Brent for November settlement sank 2.5 percent to $113.79 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s major export oil blend, dropped 3.3 percent to $111.18 yesterday, losing the most since June 21.
United Co. Rusal (486), the world’s largest aluminum producer, dropped 0.2 percent to HK$4.66 in Hong Kong trading as of 11:05 a.m. local time. The MSCI Asia Pacific Index gained 0.1 percent.
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