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Fridman’s VimpelCom Rallies on Wind Merger Speculation

VimpelCom Ltd., the wireless carrier controlled by Russian billionaire Mikhail Fridman, climbed on speculation the company will sell or merge its Italian subsidiary Wind Telecomunicazioni SpA and cut debt.

American depositary receipts of VimpelCom rose 1.1 percent to a one-month high of $12.77 in New York yesterday. The stock has gained 3.8 percent since Dec. 23, when the Financial Times reported the Amsterdam-based company was in talks over Wind with Hutchison Whampoa Ltd., which owns 3 Italia, the country’s smallest operator. The Bloomberg Russia-US Equity Index of the most-traded Russian companies in the U.S. gained 0.2 percent to 101.39 and RTS stock futures were little changed in U.S. hours.

VimpelCom, Russia’s third-biggest mobile-phone carrier, is struggling to reduce spending and boost profitability to help cut $27.6 billion of gross debt stemming from the acquisition of telecommunications assets, including in Italy and Algeria. Wind accounted for almost half of VimpelCom’s total debt and 30 percent of revenue in 2012, data compiled by Bloomberg show. Russia represented 40 percent of VimpelCom’s 2012 sales.

“The market appreciates the perspective of VimpelCom reducing its debt and focusing on faster-growing markets than Italy,” Anvar Gilyazitdinov, who manages $10 million portfolio of Russian stocks at Rye, Man & Gor Securities in Moscow, said by phone yesterday. “Even if VimpelCom decides to continue operating Wind after merging it instead of selling, that would be good for the sentiment as it reduces competition and benefits the sector as a whole.”

Replaced Dell

Bobby Leach, a spokesman for VimpelCom based in Amsterdam, had no comment on whether the company plans to sell or merge its Italian subsidiary when contacted by e-mail yesterday.

VimpelCom expects consolidation in Italy’s telecommunications market, Chief Executive Officer Jo Lunder said in a Nov. 6 interview. VimpelCom has taken no decision yet as consolidation needs the “right terms, right structure,” Lunder said at the time.

VimpelCom, which replaced Dell Inc. on the Nasdaq-100 index in October, has gained 30 percent this year, valuing the company at $22.5 billion.

Wind had total debt of 9.6 billion euros and a ratio of net debt to earnings before interest, tax, depreciation and amortization of 4.61 times at the end of last year, according to data compiled by Bloomberg. That compares with a leverage ratio of 2.6 times at Telecom Italia as of June 30 and a forecast of two times for Verizon Communications Inc.

‘Still Undervalued’

Fifteen analysts out of 26 covering VimpelCom have a hold recommendation on the company’s American depositary receipt while nine have a buy rating, data compiled by Bloomberg show.

“VimpelCom is still undervalued by the market and has a lot of potential for growth,” said Konstantin Belov, an analyst in Moscow at UralSib Financial Corp. “Market consolidation in Italy would help a lot. Investors associate Wind with a huge portion of VimpelCom’s debt and react to a possibility of debt reduction.”

Belov is ranked first among analysts covering the company after its recommendations delivered the best relative returns over the past year based on the performance of all securities covered.

VimpelCom and locally listed shares of OAO Mobile TeleSystems, Russia’s biggest mobile phone company, are UralSib’s top picks for the Russian telecommunications sector, Belov said.

ETF Advances

VimpelCom, with 219 million customers in 15 countries, reported an unexpected drop in third-quarter earnings on Nov. 6. Citigroup Inc., VTB Group, UFS Finance Investment Company and Raiffeisen Bank International cut their buy ratings last month.

Mobile TeleSystems, known as MTS, added 0.4 percent to a one-month high of $21.23 in New York yesterday, extending its 2013 advance to 14 percent.

The Market Vectors Russia ETF, the biggest U.S.-traded exchange-traded fund that holds Russian shares, gained 0.4 percent to $28.53, the first advance in four days. The RTS Volatility Index, which measures expected swings in the index futures, added 2.6 percent to 15.82 in U.S. hours, while futures on the dollar-denominated RTS Index were little changed at 145,970.

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