Rus­sian bil­lion­aire fights to re­coup in­vest­ment

The Pak Banker - - Front Page -


Bil­lion­aire Vladimir Ev­tushenkov, who has plowed $3.2 bil­lion into a phone ven­ture in In­dia since 2008, is poised to in­vest bil­lions more as his com­pany fights to re­cover mo­bile li­censes scrapped by the na­tion's top court.

The out­come of a pe­ti­tion filed against the can­cel­la­tion will de­ter­mine ac­qui­si­tion and ex­pan­sion plans of Ev­tushenkov's AFK Sis­tema in the world's sec­ond-big­gest wire­less mar­ket, Sergey Savchenko, chief fi­nan­cial of­fi­cer of its In­dian unit, said in an in­ter­view. The Moscow­based com­pany, which wrote off $700 mil­lion of its In­dia in­vest­ment, isn't leav­ing the South Asian coun­try yet, he said.

Mikhail Shamolin, CEO of AFK Sis­tema, said the man­age­ment will rec­om­mend a higher pay­out to lure in­vestors. Pho­tog­ra­pher: An­drey Ru­dakov/Bloomberg

"We have a say­ing in Rus­sia: once you've burnt your hand in hot water, you'll start to blow at cold water too," Savchenko said in New Delhi. "We are pre­pared to spend bil­lions this year for or­ganic and in­or­ganic growth if the government en­sures se­cu­rity of our in­vest­ment."

The Supreme Court's Fe­bru­ary de­ci­sion to can­cel 122 per­mits prompted Prime Min­is­ter Man­mo­han Singh's government to al­ter air­wave pol­icy, re­quir­ing op­er­a­tors to bid at auc­tions that sought to charge CDMA op­er­a­tors as much as 12 times the orig­i­nal price of spec­trum four years ago. Should Sis­tema lose its le­gal ap­peal, the com­pany may have to ei­ther exit or will need to win li­censes back by pur­chas­ing air­waves at a higher cost.

The Rus­sian com­pany is among op­er­a­tors in­clud­ing Nor­way's Te­lenor ASA (TEL), Emi­rates Telecom­mu­ni­ca­tions Corp., or Eti­salat, and In­dian bil­lion­aire Ku­mar Man­galam Birla's Idea Cel­lu­lar Ltd. (IDEA) that lost their per­mits this year. In­dia's top court ruled in Fe­bru­ary that a 2008 sale of li­censes was cor­rupted by "money power" and some buy­ers' "abil­ity to ma­nip­u­late the sys­tem," and or­dered the government to auc­tion air­waves.

While Eti­salat wound up its op­er­a­tions in In­dia, Te­lenor and Idea bid at an auc­tion last week to re­claim some of their zones by paying al­most nine times their orig­i­nal price for the same GSM spec­trum. Sis­tema stayed away from the auc­tion and said in a state­ment yes­ter­day that if its per­mits aren't re­stored, all pos­si­ble le­gal ac­tions will be taken to hold the In­dian government re­spon­si­ble for com­pen­sat­ing losses.

The com­pany has cited government pro­tec­tion through Rus­sia's bi­lat­eral in­vest­ment treaty with In­dia to re­cover lost air­waves, in­stead of in­vest­ing in new spec­trum or buy­ing one of its com­peti­tors. Sub­scriber ser­vices are sched­uled to end on Jan. 18 be­cause of the court or­der, and the com­pany ex­pects its pe­ti­tion to be re­solved by then, Savchenko said.

Sis­tema shares ended a five-day rally to­day and traded at 23.89 rubles as of 11:18 a.m. in Moscow. They have de­clined 20 per­cent from this year's high of 29.99 rubles reached on March 16, ac­cord- ing to data com­piled by Bloomberg. The com­pany yes­ter­day said group profit in the three months to Sept. 30 rose 67 per­cent from a year ear­lier to $532 mil­lion, af­ter re­port­ing losses in two of the pre­vi­ous three quar­ters.

The com­pany could've in­vested the money else­where in Rus­sia or paid div­i­dends to share­hold­ers, said Anna Kur­ba­tova, an an­a­lyst at Moscow-based BCS Fi­nan­cial Group. The man­age­ment will rec­om­mend a higher pay­out to lure in­vestors, Chief Ex­ec­u­tive Of­fi­cer Mikhail Shamolin said yes­ter­day in Moscow.

"Any fur­ther spend­ing by Sis­tema in In­dia would be neg­a­tively per­ceived by in­vestors," Kur­ba­tova said. "In­dia with over 1 bil­lion peo­ple may seem at­trac­tive, while tough com­pe­ti­tion there is curb­ing rev­enue-per-user growth for mar­ket par­tic­i­pants." With 13 op­er­a­tors of­fer­ing ser­vices to 906 mil­lion con­nec­tions in the world's sec­ond-most pop­u­lous na­tion, price wars have forced voice rates down to as low as 50 paise (0.9 cent) from as high as 16 ru­pees in 1995.

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