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MegaFon’s IPO: tug of war or attractive investment?

MegaFon’s IPO: tug of war or attractive investment?
One of the three largest Russian mobile phone operators MegaFon may be going public in 2012, seeking to raise $4bln. As news was leaked, some experts think it may be a tug war between shareholders which has been hampering the company’s IPO for years.

If the telecom company raises $4 bln, then it will be the largest IPO since July, according to Bloomberg, citing sources within the company. Russian daily Vedomosti writes the company is most likely to go public in London, floating 20% or 25% of its shares. MegaFon is reportedly planning to meet big European banks to discuss the loan for the transaction within the coming weekend.

 This will most likely be a part of package, belonging to TeliaSonera, which owns 43.77% of the company. MegaFon itself wouldn’t talk on the matter.

“MegaFon has been talking about plans to go public since 2003, but disagreements between shareholders stood in the way,” said Alexander Andryushin, Business development director at J'son & Partners Consulting.  “MegaFon has a complicated ownership structure and none of its shareholders has a controlling stake.”

The capital of MegaFon is allocated between the shareholders the following way: TeliaSonera – 43.77%, Alisher Usmanov  through AF Telecom Holding – 31.13%, Allaction Limited (Cyprus), part of Alfa Group consortium – 25.1%.

The company is now reportedly in the middle of a complicated ownership re-arrangement process. According to Reuters that would leave Alisher Usmanov, Russia’s richest individual, with 52.5 %t of shares and TeliaSonera with 47,5%.

“It may easily turn out later on that the talk of the IPO is part of the bargaining between the shareholders, the company doesn’t really need to attract money from the market,” said Andryushin.

MegaFon got a credit line of up to $1.5 bln from Sberbank on Friday. According to Reuters the company also secured loans for over $4 bln from foreign banks, which can be used to buy Alfa-Group's stake.

Ilya Rochenkov, from the independent analytical agency Invest cafe believes MegaFon is successful enough in the Russian market and does not need to go public, and the step was initiated by its shareholder TeliaSonera. According to Russian legislation it cannot get the controlling share package, as it is partially owned by the Swedish and Finnish states. The company still wants its investment into MegaFon to pay back. So conducting an IPO will raise the price of its stocks, which will let TeliaSonera either receive higher dividends or sell the shares at a higher price.

“MegaFon’s chances on the London Stock Exchange are very high,” comments Rochenkov. “The company seems very attractive for investors, as there has not been any Russian telecoms company’s heading to the market, since the IPO by Rostelecom.”

Analysts value the company at $19 bln. It has only 6.2 million shares, which makes each paper worth $2,800, according to Andryushin, who says the company may split the shares if it goes public.

MegaFon has many features, which will make it attractive to investors.  The company is a leader in providing 3G technology, and its competitors are still lagging. “MTS has increased the growth rate of their 3G networks and narrowed the gap with MegaFon,” said Andryushin. The company is also leading the development of 4G networks in Russia, which it hopes to start operating in Moscow in the first half of 2012.