Sistema May Spend $1 Billion More in India in Search of Profit

Russian billionaire Vladimir Evtushenkov’s AFK Sistema, which has written off about a third of its $2.8 billion investment in Indian mobile services, plans to spend as much as $1 billion more to expand in the market.

The company’s Sistema Shyam TeleServices Ltd. unit plans to make the investment through 2015, with $415 million being spent this year, SSTL Chief Executive Officer Vsevolod Rozanov told reporters in Moscow today. That includes interest costs, capital expenditures, covering losses and possibly developing faster wireless services using LTE technology, he said.

Sistema’s five-year campaign to benefit from growth in India’s mobile-phone market has so far failed to add to earnings amid intense competition. The India unit now projects operating income before depreciation and amortization to become positive in about two years, and it may consider market consolidation or an initial public offering once profitable, Rozanov said.

SSTL’s fourth-quarter net loss narrowed to 7.79 billion rupees ($143 million), the unit said today in a statement. Sistema, which controls Russia’s largest mobile operator OAO Mobile TeleSystems or MTS, with 101 million users at the end of 2012, entered India five years ago via a joint venture with local Shyam Group. The Russian government acquired a 17 percent stake in SSTL two years ago.

Sistema, based in Moscow, fell 1.7 percent to 25.50 rubles at 2:52 p.m. local time.

License Challenges

Last year, India’s Supreme Court canceled 122 permits held by telecommunications operators in the country as the government sought to auction these licenses again at a higher price, citing corruption during their original allocation.

Sistema skipped a November auction, which collected less a quarter of the government’s $7.3 billion target. It was the only bidder in a repeated auction in March this year, when India agreed to lower prices for the remaining spectrum. SSTL, which earlier had a pan-Indian license, decided to stay in nine out of 22 regions, servicing 40 percent of the country’s population.

SSTL agreed to pay about $665 million for 20-year licenses for 800 megahertz spectrum, Sistema said in March 11 statement. The $297 million paid by Sistema in 2008 for the same licenses will count toward the total and the remainder may be paid during 10 years starting in 2016, according to the statement.

Evtushenkov, with wealth valued at $6.7 billion by Forbes magazine, made his money in telecommunications. MTS accounts for about 36 percent of AFK Sistema’s revenue and 62 percent of the company’s operating income before depreciation and amortization, according to third-quarter presentation. Sistema also controls oil producer OAO Bashneft.

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