Deutsche Telekom to cut MTS stake by 12% - hopes to raise USD1.44 billion in the process

17 Dec 2004

Germany’s largest telecoms company Deutsche Telekom (DT) is planning to sell a 12% stake in Russia’s leading mobile operator Mobile TeleSystems (MTS), which had 20.84 million subscribers at the end of September 2004, raising around USD1.44 billion in what could be the biggest stock sale of a Russian company since 2002. The share placement, for which an accelerated bookbuilding started on Wednesday, is being conducted by UBS and Citigroup and is expected to be completed later today with most demand likely to come from foreign investors. The sale will reduce DT’s holding in the Russian cellco to 13.1%, leaving Russian financial/industrial group Sistema as the cellco’s principal shareholder with 51%. Under the terms of the deal DT is not allowed to sell off any more MTS shares for a minimum 180 days.

DT’s decision to sell off a further chunk of MTS comes as no surprise to the investment community following a statement last month from the German company’s CEO Kai-Uwe Ricke, confirming that MTS was seen merely as a financial, rather than a strategic investment. The Russian cellco was once considered key to DT’s expansion in the rapidly growing east European mobile market, but has since lost its appeal. DT now plans to bolster its business portfolio in other parts of eastern Europe, such as Poland, Hungary and the Czech Republic, and the United States, and hopes to take advantage of Russia’s longest period of economic growth since the collapse of communism, which has triggered renewed interest from the investment community. The situation is in stark contrast to 2003 when the German giant was forced to sell a 15% interest in MTS to help cut its crippling debt burden. Although it has regained control of its debts, it still needs to bankroll several significant investments next year, including the re-integration of its internet division T-Online and an estimated USD2.5 billion outlay in the US for network acquisitions.

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