Russian billionaire fights to recoup investment

MOSCOW

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.