Deutsche Telekom raised about E1.2bn ($1.47bn) from the sale of its remaining stake in the Russian mobile operator.
The placement of 200 million shares on the Russian capital market was priced at RUB210 ($7.40) per share. This was a discount of 5% to the closing price of MTS on the Moscow market of RUB222 ($7.82), said one of the lead bankers. UBS Investment Bank, Deutsche Bank, and its Moscow affiliate United Financial Group were the bookrunners on the deal.
Over the past two years Deutsche Telekom has been slowly offloading its 40% stake in MTS, and the Bonn, Germany-based carrier has now raised total proceeds of about E3bn ($3.68bn) for the entire stake.
It has also been working hard over the past couple of years to reduce its huge debt burden, which now stands at a still hefty E44.53bn ($55.38bn). When CEO Kai-Uwe Ricke took charge in 2002, the carrier appeared to be in serious trouble after over-extending itself during the late 1990s. It was saddled with a colossal debt burden, which at the end of 2002 stood at E61.1bn ($75.97bn).
In addition, Deutsche Telekom recently announced a E3bn ($3.7bn) spending plan over two years whereby it will upgrade large parts of its network. The upgrade means that Deutsche Telekom will strip out large parts of its old copper wire network and replace it with high-capacity fiber-optic cable, capable of speeds of up to 50MBps.
However, the trade-off is that it has now left the Russian market. This leaves the carrier stuck in its existing markets, which tend to be centered around the highly saturated regions of Europe and the US, which means achieving large-scale growth is next to impossible. On the other hand, eastern Europe, for example, is a large potential growth area due to the low levels of mobile usage, as witnessed by the recent moves into eastern Europe by Vodafone Group Plc and France Telecom SA.
MTS is the largest mobile phone operator in Russia and the CIS, providing a GSM-based mobile service to over 38.7 million customers. It has a license footprint area that covers a population of 225.8 million in 87 out of 89 regions in Russia, as well as the entire territories of Ukraine, Belarus, and Uzbekistan. The scope for growth here is obviously huge, but Deutsche Telekom had deemed that its MTS stake was financial, not strategic, and it would remain focused on Europe and the US.
For the second quarter ending June 30, Mobile TeleSystems reported net income up 14% at $304m, from $267.5m in the year-ago quarter. Sales rose 35% to $1.23bn from $918.2m. The operator’s largest shareholder is the Russian consumer industries conglomerate Sistema, with a 50.5% stake.
