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Russia May Privatize Rostelecom in 2013 as Tele2 Deal Looms

OAO Rostelecom may be privatized this year as the Russian government moved up plans to sell its majority stake in the telecommunications operator that may be the ultimate buyer of Tele2 AB’s (TEL2B) business in the country.

Originally, the state planned to sell its 53 percent in the fixed-line monopoly that’s seeking to expand into mobile from 2014 through 2016. Today, Federal Property Management Agency head Olga Dergunova said it’s proposed adding the stake to this year’s privatization plans.

“This asset would be interesting to a wide range of investors” once Rostelecom merges with state-run holding company Svyazinvest, Dergunova said. The government may sell its entire holding in Rostelecom while keeping a “golden share” so it can veto unfavorable decisions, she said.

State-run lender VTB Group (VTBR) announced the completion of a $3.55 billion acquisition of Swedish Tele2’s wireless business in Russia today. VTB may resell the company to Moscow-based Rostelecom in six to eight months once the merger with Svyazinvest is completed, Renaissance Capital has said. Tele2 could get half of VTB’s cash profits should the bank sell the Swedish company’s Russian business to a third party within a year of the deal’s completion, Tele2 said April 2.

Arkady Rotenberg, Vladimir Putin’s judo partner, bought a 10.7 stake in Rostelecom a month ago. Then Rostelecom appointed Sergey Kalugin as its new chief executive officer. Kalugin previously worked for another Putin ally, Yury Kovalchuk, who runs a joint business with Sweden’s Stenbeck family, which formed Tele2.

Shares

VTB Group’s shares slumped 2.9 percent to $2.94 at 5:04 p.m. in London, while OAO Mobile TeleSystems declined 2.6 percent to $19.96 at 12:06 p.m. in New York and VimpelCom Ltd. (VIP) dropped 1.5 percent to $11.71.

Buyers of the “Rostelecom stake from the government would most likely benefit from a subsequent merger with Tele2 assets,” said Otkritie Capital analyst Alexander Vengranovich. Businessmen like Rotenberg may be interested in acquiring more of Rostelecom, he said. Selling the whole government stake makes the process less transparent than disposing a smaller stake in a public offering, Vengranovich said.

A representative for Rotenberg who asked not to be named in keeping with internal policy declined to comment on the Rostelecom privatization. Alexander Karmaev, a spokesman for Kovalchuk, couldn’t be immediately reached for comment.

Tele2 has mobile coverage in 41 out of 83 Russian regions and 22.7 million users, while Rostelecom covers 30 regions and has 13.6 million mobile customers. The two carriers combined would create a nationwide operator.

Larger Russian mobile operators OAO Mobile TeleSystems (MBT) and VimpelCom Ltd. sought to derail the legally binding VTB deal, jointly offering as much as $4.25 billion for Tele2 Russia.

To contact the reporters on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net; Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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