Norwegian investment fund Skagen Vekst, a minority shareholder in TeliaSonera, said in a July report that the Stockholm-based holding may quit capital of the Russian operator.
“The recent purchase of Tele2 in Norway paints a clear picture that Telia is willing to move. A third of the market cap is explained by the shareholdings in MegaFon and (Turkish cellular operator) Turkcell and those assets could be disposed to free cash for consolidation in the Nordic region,” the report read.
TeliaSonera acquired Tele2’s business in Norway in early July. The transaction will increase the holding’s mobile market share in Norway to about 40% from 23% and boost the number of subscribers to 2.7 million from 1.6 million in the country.
Skagen Vekst’s statement hints at TeliaSonera’s possible global decision within its long-term strategy. “We can’t rule out that TeliaSonera may at some moment revise its priorities and focus on strengthening its positions in Europe, or, on the contrary, bet on rapidly growing emerging markets,” Finam Management analyst Maxim Klyagin said.
Some analysts think that the holding’s interest in the growth of the Nordic business and Western sanctions against Russia, which increase country risks, may be the two factors behind TeliaSonera’s decision to divest of its Russian business.
“I believe that TeliaSonera will sell its entire stake in MegaFon’s capital and subsequently use generated cash for business development in Scandinavian countries.”
The holding’s decision to quit MegaFon’s capital also looks probable due to the sanctions imposed on Russia by the US and the EU, Viktor Markov, a senior analyst at Zerich Capital Management, said. “Certainly, a lot will depend on the value of the asset, since TeliaSonera won’t sell it for any price. The decision will be influenced by a high return on investments,” the analyst said.
Alpari’s senior analyst Anna Bodrova said that it’s too early to speak about a possible sale of the stake. She pointed to the apparent long-term value of the asset.
“Another issue is what TeliaSonera’s priority is. If the priority is the Nordic assets, the company won’t wait,” Bodrova said.
Other MegaFon shareholders include AF Telecom Group, owned by tycoon Alisher Usmanov, with 53.65% plus 100 shares; MegaFon Investments, 100%-held by MegaFon, with 3.92%; MegaFon CEO Ivan Tavrin with 2.55%; and 14.71% in free float.
Rostelecom and Tele2 created a new large operator, which will work under the Tele2 brand, in early August. Tele2 servicing more than 60 out of Russia’s 85 regions. It controls 2G-3G licenses in all Russian provinces and has a license for 4G spectrum for the whole of Russia.
Zerich’s Markov said that given the sanctions the stake may be bought either by a Russian business or a Chinese firm. “MegaFon has good prospects, that is why there will be no problems with the sale. Moreover, we are speaking about a large stake and a dynamically growing technological sector,” he said.
In April-June, the net profit of TeliaSonera decreased by 11% hit by falling incomes from participation in MegaFon and Turkcell due to the weakening ruble and the Turkish lira against the euro.
VTB Capital analyst Ivan Kim said that despite MegaFon’s lackluster results in April-June, the company is set to deliver on its annual guidance. “The stock offers a good value…The ruble weakness could be a headwind, but we do not expect it to fall further, given the central bank’s decisive stance,” Kim said.
Analysts do not think the sale will have a significant influence on MegaFon’s quotes.
“MegaFon’s business is focused on the Russian market, which accounts for 98.9% of the company’s total revenue. We do not currently see any growth or fall drivers for MegaFon’s stocks,” KIT Finance’s Yalygin.
In the long-term MegaFon’s shares will continue being attractive for investors because of a promising future of the Russian telecommunications sector, Zerich’s Markov said.
“The sale may ricochet and affect TeliaSonera’s results, because MegaFon is a good asset, generating financial flows. It would be hard to find a replacement. But TeliaSonera may receive a high return on its MegaFon investment, which hints at a promising potential of the holding,” Markov said.