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Rostelecom and Tele2 Russia sign a joint venture framework agreement

February 07, 2014, 4:41 UTC+3 MOSCOW
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MOSCOW, February 07, 4:34 /ITAR-TASS/. Rostelecom, Russia’s national telecommunications operator and Tele2 Russia on Thursday, February 6, signed a framework agreement that will lead to the integration of their mobile assets.

The framework agreement, which was previously approved by Rostelecom’s Board of Directors, outlines the terms and conditions surrounding the contribution of Rostelecom’s mobile subsidiaries and its integrated mobile assets into the share capital of the joint venture, LLC T2 Rus Holding2. Rostelecom’s Board of Directors approved the decision to participate in the JV on December 12, 2013.

The JV sees Rostelecom’s mobile assets and Tele2 Russia’s assets combine to form a leading mobile operator in Russia. Rostelecom is transferring assets with an enterprise value of approximately 3.5 billion U.S. dollars to the JV.

In accordance with the framework agreement, the first stage of the deal is expected to be closed in spring 2014. The first stage will see Rostelecom contribute the shares of its mobile subsidiaries to the JV’s share capital, as well as part of its integrated mobile assets (the assets of the “start-up regions”), including Moscow and St Petersburg. Rostelecom will have a 45 percent share of votes and a 26 percent economic share. In addition, the two parties will enter into MVNO agreements, licensing agreements regarding the two companies’ brands, as well as a range of agreements for the transitional period. According to these agreements, Rostelecom will provide services for the JV during a certain period of time after the first stage has been completed. The first stage will also involve signing a participation agreement defining matters which include the JV’s corporate governance system.

The second phase of the transaction will be completed within the year. During the second stage of the deal, Rostelecom will contribute 100 percent of RT-Mobile shares to the JV’s share capital. Rostelecom will transfer its integrated mobile assets, allocated as part of the company’s reorganisation approved at the AGM on December 30, 2013, to RT-Mobile. Following the completion of the second stage of the deal, Rostelecom will be able to increase its share in the JV’s share capital to 45 percent.

Sergei Kalugin, President of Rostelecom, said: “This deal marks a key milestone in the implementation of Rostelecom’s mobile strategy. The company’s mobile assets complement Tele2 Russia’s both in terms of geographical reach and in terms of combining Tele2 Russia’s successful operating model with Rostelecom’s extensive portfolio of frequency spectrums.”

Maria Florentyeva, Vice President of Strategic Planning and Investor Relations, said: “The framework agreement defines the operating procedure for Rostelecom to integrate its mobile assets into the JV. It also outlines the operational interaction of the two parties in the interim period before the deal is closed, which allows us to launch commercial integration as quickly as possible without waiting for the deal to be fully completed.”

VTB Group and its partners, Bank “ROSSIYA” and entities controlled by businessman Alexei Mordashov, announced the merger of the mobile assets of Tele2 Russia with the mobile assets of Rostelecom into a single company, T2 RTK Holding. The mobile operator will continue to operate under the well-established and popular Tele2 brand. VTB and its partners will own at least 55 percent of the new company, with Rostelecom having a 45 percent stake.

During the first phase of the integration, Rostelecom will transfer all its mobile subsidiaries - including SkyLink, Nizhegorodskaya Sotovaya Svyaz, Baikalvestcom, BIT, Volgograd GSM, Yenisey Telecom and AKOS - to the new company. In the second phase, Rostelecom will transfer its integral mobile assets.

The new company will provide services in more than 60 regions across Russia to a subscriber base of about 38 million people.

The agreement opens up new opportunities for Tele2 Russia. It will gain licenses (2G/3G/4G) to expand mobile coverage across all 83 regions of Russia, including Moscow, and provide a wide range of services including high-speed mobile internet access.

“Tele2 Russia has built an efficient and very profitable business, which has been a successful investment for VTB Group. The Tele2 management team will continue to develop the new, joint company. The creation of a new national operator will play a vital role in the development of Russia’s telecoms market, offering users additional choice and providing access to high-quality and affordable mobile and internet connections,” Yuri Solovyov, First Deputy President and Chairman of VTB Bank Management Board, said.

VTB Group acquired 100 percent of Tele2 Russia from Swedish operator Tele2 AB as a private equity investment in April 2013 with a view to supporting Tele2 Russia in the next stages of its development and subsequently realising its investment. In October 2013, VTB Group sold a 50 percent stake in Tele2 Russia to strategic investors including Bank “ROSSIYA” and entities controlled by Alexei Mordashov for a price in line with VTB’s expectations.

The joint venture being created by Tele2 and Rostelecom, Russia’s leading telecom operator, may be headed by a financier close to the JV’s shareholders, Andrei Kostin, President of VTB Bank (one of the Tele2 Russia shareholders) said.

“I think it will most likely be a well experienced financier. I do not think it will be a person with a long record of work in the telecom sector. We will announce him shortly,” Kostin said.

He noted that the candidature of Vadim Semenov, chairman of Rostelecom’s Board of Directors, had not been not considered even though the business daily Vedomosti had claimed otherwise. “We have never discussed it. I have no idea where they got it,” Kostin said, adding that there were three candidates, “all close to the present shareholders.”

The joint venture of Tele2 and Rostelecom will be created in 2014 as the fourth federal telecom operator in Russia. Rostelecom will have a 45 percent stake in it, with the remaining 55 percent to be shared by Tele2 Russia co-owners: VTB, Yuri Kovalchuk’s Bank Russia, and Alexei Mordashov’s Invintel B.V.

Rostelecom is Russia’s largest national telecommunications operator with presence in all Russian regions. The Group is a universal operator and undisputable leader of broadband and pay-TV markets in Russia with over 9 million fixed-line broadband subscribers and over 6 million pay-TV subscribers. As Rostelecom develops its mobile data networks, its position as a major mobile operator is growing with over 13 million currently subscribed to Rostelecom’s mobile voice services. The Company currently has approximately 28 million local fixed-line voice subscribers and it is the leader in the corporate and government services segment. The Group is also an important innovator that provides solutions in the field of medicine, E-Government, cloud computing and education.

Rostelecom was assigned a ‘BBB-‘ and ‘BB+’ international credit ratings by Fitch Ratings and Standard & Poor’s respectively, both with a ‘Stable’ outlook. The Group generated 321 billion roubles of consolidated revenues and 34.5 billion roubles of net income in 2012.

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