MegaFon IPO Said to Be Oversubscribed at Low End of Range

OAO MegaFon (MFON), Russia’s second-largest mobile operator by users, received more than enough orders to fill its initial public offering on the last day of the sale, according to two people with knowledge of the matter.

The order book is covered at $20 a share, allowing the IPO to raise at least $1.7 billion, the people said, asking not to be identified as the details aren’t public yet. The company declined to comment. Megafon, based in Moscow, had initially set a price range of $20 to $25 for the shares. Trading of shares will begin Nov. 28 in London and Moscow.

Megafon, which competes with Russia’s largest mobile operator OAO Mobile TeleSystems (MBT), or MTS, had postponed an IPO marketing campaign in October, raising investor speculation the demand may have trailed expectations amid the sovereign debt crisis. Megafon still attracted enough investors as it offers an alternative in the Russian telecommunications industry, said Moscow-based UralSib Capital analyst Konstantin Chernyshev.

“MegaFon’s placement will offer alternative exposure to the Russian telecoms sector, with reasonable top-line growth, stable cashflows, and attractive dividends,” he said.

MegaFon agreed to pay 50 percent of profit or 70 percent of free cash flows in dividends. MTS is paying half of profit in dividends and plans to increase the payout.

‘Tiny Discount’

A price of $20 per MegaFon share ‘‘is adequate, approximately equal to MTS, reflecting just a tiny discount,’’ said Igor Semenov, a Moscow-based analyst at Deutsche Bank.

At $20 per share, MegaFon would be valued at a enterprise value of 4.2 times estimated 2013 earnings before interest taxes, depreciation and amortization compared with 4.3 times for MTS, according to Semenov.

Megafon’s sale comes on the heels of another telecom operator, Telefonica Deutschland Holding AG, raising 1.5 billion euros ($1.95 billion) in Europe’s largest IPO this year.

IPOs have raised less than a third of the amount in 2011 as equities fell out of favor amid the sovereign debt crisis in Europe, data compiled by Bloomberg show. Equity sales from Russia increased as OAO Sberbank (SBER), the country’s largest lender sold $5.2 billion of share in a secondary offering in September.

Shareholder Deal

The sale is a part of a shareholder agreement reached in April with Alisher Usmanov, the Russian billionaire who controls MegaFon, to resolve disputes between Stockholm-based TeliaSonera AB (TLSN) and the venture’s local owners. Usmanov will retain his 50 percent holding, while TeliaSonera will keep at least 25 percent, MegaFon said this month.

The IPO, which may be the largest in Russia since that of United Co. Rusal’s (486) in 2010, will have a 10 percent so-called over-allotment option to cover extra demand, Megafon said on Nov. 15. MegaFon and TeliaSonera are selling a combined 15 percent stake through the transaction.

TeliaSonera today said its CEO Lars Nyberg would buy shares worth $2 million in the IPO, at their offer price. Nyberg is a member of Megafon’s board of directors.

Morgan Stanley (MS) and OAO Sberbank are managing MegaFon’s share sale, with help from Credit Suisse Group AG (CSGN), Citigroup Inc. (C) and VTB Capital. (VTBR)

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Ruth David in London at rdavid9@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net; Jacqueline Simmons at jackiem@bloomberg.net