28 December set as Ukrtelecom sale date; several major telcos excluded by bidding conditions

14 Oct 2010

Ukraine’s State Property Fund (SPF) yesterday confirmed that it will launch a tender on 28 December 2010 for the government’s 92.79% stake in the country’s former fixed line monopoly and sole 3G mobile licensee Ukrtelecom. Earlier this week the starting bid price for the stake was set at UAH10.5 billion (USD1.3 billion). However, conditions excluding certain bidders will apply, excluding several major telecoms groups previously thought likely candidates to bid. Firstly, a potential investor in the operator must not be a company in which any government, or state-owned firm, owns more than a 25% stake. Furthermore, companies that are co-owned by firms with 25%-or-more state ownership are also banned from taking part in the tender. The definition of state ownership includes state-run investment funds and other indirect holding. The rules deny the possibility of bids from such telcos as Germany’s Deutsche Telekom (DT), Norway’s Telenor, France Telecom, Russia’s Rostelecom, Sweden’s TeliaSonera and Telekom Austria; for instance the government of Germany’s direct and indirect ownership of DT exceeds 25%, partly via state development bank KfW.

In addition, according to the tender documents, companies with annual revenues accounting for over 25% of the Ukrainian telecoms market will not be able to participate in the auction. According to a report from RBC Ukraine the overall market figure was UAH43.25 billion in 2009, and Ukrainian mobile operator Kyivstar (part of the Vimpelcom group along with sister companies URS [Beeline] and Golden Telecom) exceeded the 25% threshold in that year. Vimpelcom could also fall foul of the aforementioned ownership rules, as Telenor (54%-owned by the state of Norway) has 36.0% voting rights (39.6% equity) in the Russian group, of which Kyivstar is a wholly owned part (under a merger deal which awaits final clearance from Ukrainian anti-monopoly authorities). Ukrainian investment bank Dragon Capital indicated in a note to investors that the bidding conditions greatly increased the chances of domestic conglomerate System Capital Management (SCM) – which has been linked with a potential purchase of the national PTO several times over the last decade – as well as Russia’s Sistema Group, owner of the second-largest domestic mobile operator MTS Ukraine. SCM is owned by Ukraine’s richest man Rinat Akhmetov, and runs fixed line and broadband operator Vega (formerly Farlep/Optima), which is Ukraine’s second largest wireline operator with 690,000 connections as of end-2009 (compared to Ukrtelecom’s 10.3 million), according to TeleGeography’s GlobalComms Database. SCM also co-owns Ukrainian cellco Astelit with Turkish partner Turckcell (another company previously linked to a possible bid for Ukrtelecom).

Another condition set by the SPF states that a successful bidder will not be allowed to cut staff numbers at Ukrtelecom for three years. The telco has been cutting down the size of its payroll over recent years, as much in response to economic pressures as in preparation for privatisation: although it cut total staff by 8.7% in the first half of 2010, this left it with around 80,000 employees across its fixed and mobile network divisions.

Ukraine,Ukrtelecom (incl. TriMob), Vega, Sistema,

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