MTS With Owner Under Arrest Weighs Stake in Svyaznoy Chain

OAO Mobile TeleSystems, Russia’s largest wireless carrier, may buy a stake in handset retailer Svyaznoy to safeguard its sales channels, even as MTS’s billionaire owner remains under house arrest in connection with oil industry investments.

“We requested an antitrust approval for the acquisition, while it hasn’t yet been reviewed by the board of directors,” Chief Executive Officer Andrei Dubovskov said in an interview in Moscow. “The deal may proceed if it would guarantee investment returns and boost MTS cash flows.”

MTS, controlled by Vladimir Evtushenkov, is following a similar move by competitors OAO MegaFon and VimpelCom Ltd., who split ownership of handset retailer Euroset in 2012. MTS no longer works with Euroset and now operates about 4,000 of its own stores and sells through outlets including Svyaznoy’s shops. Svyaznoy may be worth $300 million to $400 million, said Evgeny Golosnoy, an analyst at Moscow-based IFC Metropol.

The house arrest of Evtushenkov isn’t affecting operations, including the decision-making process on the potential Svyaznoy deal, Dubovskov said in the interview. Russian prosecutors placed the billionaire under house arrest two weeks ago for alleged violations in the acquisition of shares in oil producer OAO Bashneft.

Sistema Decline

The probe into alleged money laundering prompted investor concern that the Russian government may squeeze Evtushenkov out of the oil business as it did a decade ago with ex-Yukos owner Mikhail Khodorkovsky. AFK Sistema, Evtushenkov’s holding company, has lost about two-thirds of its market value since mid-September, while MTS has declined more than 21 percent.

MTS slid as much as 1.1 percent today and was down 0.5 percent at $14.61 per depositary receipt at 10:02 a.m. in New York

Svyaznoy, controlled by entrepreneur Maxim Nogotkov, runs 3,200 shops and sold 4.4 million smartphones last year. It is Russia’s biggest seller of Apple Inc.’s iPhone and has 27 percent of the country’s smartphone sales by value, the company said in February. Nogotkov, who also controls Svyaznoy Bank, Enter online store and the Russian franchise of jewelry retailer Pandora A/S, has been seeking investors to ease debt, Kommersant said in July.

Svyaznoy spokeswoman Maria Zaikina wasn’t immediately available for comment.

MTS doesn’t expect difficulty with 3G licenses in Ukraine, where the government threatened to ban Russian operators from an auction of frequencies, Dubovskov said. “We see this probability as small” as 49 percent of MTS shares are held by U.S. and European investors.

The company also sees advantages including “risk protection” in Uzbekistan, where it will restore operations as part of a joint venture with the government in December after a two-year hiatus related to ownership disputes, Dubovskov said.

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