Ernst & Young assesses 28% stake in MGTS at 12 billion roubles
Kommersant has learned that the company Ernst & Young has evaluated the 28% stake in Moscow City Telephone Network (MGTS) belonging to Svyazinvest at more than 12 billion roubles. Earlier, the principal owner of AFK Sistema, Vladimir Yevtushenkov, told Prime Minister Vladimir Putin that he was ready to give back to the state 25% plus one share in Svyazinvest (23.7 billion roubles) in exchange for a write-off of its debt to Sberbank (26 billion roubles) and a share of the state holding in MGTS (at present Sistema owns 66% of voting shares).
The report of the company Ernst & Young on the value of the 25% + 1 share of Svyazinvest (the state owns 75% minus 1 share) belonging to AFK Sistema puts its value at 23.7 billion roubles ($740 million at the CB exchange rate on May 15) as of December 31, 2008, a source close to the holding's shareholders told Kommersant. The information was also confirmed by another source close to the Ministry of Communications and Mass Media.
Mr Yevtushenkov offered to buy the AFK stake in Svyazinvest in October. Ernst & Young's assessment is almost three times less than the asking price of Sistema ($1.9 billion) and a little over half of the price which AFK itself in its time paid for Leonard Blavatnik's Access Industries share in Svyazinvest ($1.3 billion).
After the preliminary assessment by Ernst & Young of April 15 (the price of the blocking stake was 23 billion roubles) AFK indicated that in that case it would pay the state for one more quarter of Svyazinvest, about 20 billion roubles, to acquire a controlling stake.
Meeting with Vladimir Putin on May 5, Mr Yevtushenkov proposed another deal: to use AFK's stake in Svyazinvest to redeem the 26 billion rouble Sberbank loan, but on condition that Sistema would get 28% of MGTS. In the opinion of Ernst & Young, the package costs more than 12 billion roubles. Proceeding from that assessment, the value of the whole of MGTS equals $1.3 billion; from the results of Friday's trading at RTS the market capitalisation of MGTS stood at $1.2 billion.
Svyazinevst and Comstar declined to comment on Ernst & Young's statement yesterday.
Moscow City Telephone Network (MGTS) provides fixed telephone communications and Internet access. It had about 5 million subscribers in October. Comstar-OTS owns 66% of the voting shares of MGTS and Svyazinvest owns 28% of voting shares. The remaining shares belong to minority holders. The company owns 7.7% of Svyazinvest as well as 14% of Comstar.
Comstar (51% owned by AFK) has repeatedly tried, without success, to buy out MGTS shares from Svyazinvest. In December, 2005, as part of an offer to Svyazinvest, it was invited to sell 28% of MGTS for $380 million, and in March 2006 the price of the offer increased to $394 million. However, the Government blocked the deal each time, one argument being the absence of the evaluation of 28% of MGTS by independent auditors. Such an assessment was made by KPMG in May-June 2008. However, the Federal Service for the Management of Federal Property (Rosimushchestvo) declared the KPMG price ($430 million) to be unacceptable. In 2007 Nexia Pacholi assessed the MGTS stake at $983.5 million.
Anna Lepetukhina, an analyst from Troika Dialog investment company, believes that it is important for Comstar to possess MGTS because the company's infrastructure covers the whole city, so instead of laying costly fibre-optics cables to every house, like its rivals, it could use ADSL technology to ensure a cheaper offer in a time of crisis: "In any case to get 100% of MGTS, AFK will either have to pay an additional sum to the state or give away one of its assets," adds Ms Lepetukhina. "If the state does not agree to the scheme in principle, it will probably propose terms unacceptable to Sistema: for example it may propose that the treasury shares of Comstar or Skylink be used as additional payment."
By Inna Yerokhina
