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Russia May Sell 12% of Rail Monopoly as State Seeks Investment

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April 14 (Bloomberg) -- Russia may offer 12 percent of its monopoly OAO Russian Railways, the operator with the longest train network, as the government seeks to raise budget revenue and improve infrastructure.

A 25 percent stake slated for sale “would be too much” for investors to absorb at once, Transportation Minister Igor Levitin, 59, said in an interview. “Selling 10 or 12 percent would be more appropriate.”

The company may be worth several times its share capital of more than 1.5 trillion rubles ($53 billion), Chief Executive Officer Vladimir Yakunin said last year.

The government plans to sell 1.8 trillion rubles of state assets within the next five years as it seeks to close a budget gap. As much as 25 percent minus one share in Russian Railways is scheduled for sale sometime later than 2013, after the monopoly sells stakes in its own units to raise investment funds.

The monopoly may spend more than 1 trillion rubles on upgrades in the next three years, said a company official, who asked not to be named because of corporate policy. The rail operator plans to spend 350 billion rubles on tracks and rolling stock, of which 132 billion rubles will be raised through stake sales, the operator said in January.

To help finance infrastructure upgrades, Russian Rail sold 350 million pounds ($572 million) of bonds in March, after a sale of $1.5 billion of notes last year. The yield on the 2017 dollars bonds fell by 8 basis points today to 4.837 percent.

Telecoms Sale

Russian Railways may sell a stake in its ZAO TransTeleCom telecommunications unit next year to help finance spending, Levitin said in the April 12 interview. The company must retain control “at least in the initial stage” because of its reliance on the fixed-line phone operator, he said.

A 25 percent stake in freight unit OAO TransContainer may be sold this year, Levitin said. The operator raised about $400 million selling 35 percent of the unit in an initial public offering in Moscow and London in November. Russian Railways now holds 50 percent plus one share.

The Transportation Ministry recommends the rail company sell its entire TransContainer stake, said Levitin, who has been minister since 2004. The government and Russian Railways haven’t reached an agreement yet about how shares will be sold this year, he said.

“We could raise more money from selling the holding in one go than selling it in slices,” Levitin said. TransContainer’s global depositary receipts in London have gained 41 percent since the start of trading.

To contact the reporter on this story: Ekaterina Shatalova in Moscow at eshatalova@bloomberg.net;

To contact the editor responsible for this story: Torrey Clark at tclark8@bloomberg.net

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