MTS, Kyivstar, Rostelecom remain hopefuls for Ukrtelecom’s 3G mobile unit?

25 Apr 2012

A report in Ukraine’s Kommersant newspaper, quoting unnamed sources, says that recent negotiations on the planned sale of Ukrtelecom’s 3G mobile division with potential buyers, including three Ukrainian cellcos, failed as the parties did not reach agreement on a satisfactory price range for the unit. A source ‘familiar with the negotiations’ indicated that Ukrtelecom’s Austrian owner Epic was unwilling to significantly lower its asset valuation for the 3G network operation. One source claimed that Ukraine’s three GSM mobile operators had been involved in the negotiations but had now pulled out due to disagreement over pricing, leaving only Russian-based contenders in the running. However, other sources maintain that the three cellcos – Astelit (backed by Turkey’s Turkcell and Ukrainian conglomerate SCM), Kyivstar (part of the Russia/Norway/Egypt-backed Vimpelcom group) and the Ukrainian branch of Russia’s MTS – remain potential candidates to bid for Ukrtelecom’s 3G business, which is the country’s only holder of 2100MHz wireless frequencies. One unconfirmed version of recent events has it that Russian telco Rostelecom was involved in the original round of unsuccessful negotiations alongside the three Ukraine-based operators, while further talks are ongoing with MTS and Kyivstar – the latter having ‘conducted substantive negotiations on the price’ – with Rostelecom’s continued involvement neither confirmed nor denied by the Russian company.

TeleGeography’s GlobalComms Database writes that, having paid UAH10.58 billion (USD1.32 billion) for Ukrtelecom in March 2011, alongside a promise to invest at least UAH450 million, Austrian fund Epic was faced with a large additional investment necessary to compete with the country’s better-established cellular operators, and decided in June 2011 to put the mobile unit up for sale. In September 2011 Ukrtelecom formed a separate company, named TriMob, to transfer all its mobile assets from its internal Utel division, which officially took effect on 1 January 2012. It received purchasing proposals in two rounds in October and November 2011, but a target of finalising a sale by the first quarter of 2012 eluded it.

The telco is under financial pressure to agree a sale of TriMob soon. According to statements from Ukrtelecom cited by Kommersant, failure to secure a deal could mean that Sberbank of Russia may require early repayment of a USD250 million loan used for refinancing, investments and working capital, while the telco may be unable to compensate for losses predicted for this year, meaning it may be unable to invest adequately in its operations. It recently said that it expected net losses to near-double in 2012, to UAH266 million, having reduced the figure to UAH136.6 million in 2011, down from UAH260.4 million the previous year. Total revenues are expected to reach just under UAH8 billion, while CAPEX is budgeted at UAH135.4 million for 2012.

Ukraine, Kyivstar, Mobile TeleSystems (MTS), Rostelecom, Ukrtelecom (incl. TriMob), Vodafone Ukraine