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Rostelecom Falls to Six-Week Low as BofA Cuts: Moscow Mover

OAO Rostelecom dropped to the lowest level in six weeks after Bank of America Merrill Lynch cut its recommendation on the state-run telecommunications operator’s stock to the equivalent of sell.

Rostelecom tumbled as much as 2.7 percent and traded down 2 percent at 108.76 rubles by 1:31 p.m. in Moscow, the lowest intraday level since July 16. The amount of securities trading was equivalent to about 31 percent of the three-month average. Shares are down 9.6 percent this year.

BofA Merrill Lynch cut the stock from neutral to underperform and lowered the price estimate to 100 rubles an ordinary share, according to today’s report. Rostelecom’s merger with OAO Svyazinvest, the start of its mobile network and a potential buyout of Tele2 Russia may boost capital expediture and increase leverage while diverting management’s attention, according to the report.

“The company is clearly in transition, being pulled in different directions by its fixed-line and mobile strategies,” BofA analysts, including Haim Israel, said in the e-mailed note.

VTB Group plans to sell Tele2 Russia within a year and has looked at Rostelecom among potential buyers, a deal that would make it the country’s fourth major wireless operator, Prime newswire reported in June, citing the bank’s Chairman Andrey Kostin. Rostelecom’s acquisition of Tele2 Russia may pressure its balance sheet, signal more investments and present operating challenges, according to BofA analysts.

Rostelecom dropped 0.7 percent to $19.71 in London trading.

To contact the reporter on this story: Ksenia Galouchko in Moscow at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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