Russian govt to acquire 20% in Sistema Shyam for $600 mn

NEW DELHI: The Russian government on Wednesday said it is buying a minority stake in telecom services provider Sistema Shyam for $600 million in a deal that values the company at $3 billion.

Sistema Shyam TeleServices (SSTL) president & CEO Vsevolod Rozanov told ET that the Russian government’s stake in the company, which offers CDMA-based mobile services in India under the MTS brand, will be around 20%.

“We plan to use the funds to accelerate our services rollout, increase wireless broadband coverage and expand our branded retail network,” Mr Rozanov said.

Sistema, which is one of the largest public diversified corporations in Russia and the CIS, holds 74% in the JV with the Shyam Group. The telco was among the nine new companies to be given pan-India licences in early 2008 to launch mobile services.

“It is expected that the Russian government, represented by the Federal Agency for State Property Management (Rosimushchestvo), will participate in an issuance of additional shares of SSTL, paying the equivalent of
$600 million in Indian rupees held in accounts representing Indian governmental debt to the Russian Federation,” the company said in a statement in Moscow.

As reported earlier by ET, the Russian government is using the money under the Rupee-Rouble debt agreement between both the countries to finance its 20% in the telco.

With India owing huge amounts to Russia (for products bought prior to the collapse of the Soviet Union), both the governments had agreed that Russia can use this rupee debt to finance its investments and JV projects in India.

Currently, SSTL has a shade over 6 million customers and offers mobile services in 12 of the 22 circles in the country. “We plan to expand our footprint to 15 circles by calendar 2010 end,” Mr Rozanov said.

Once the Russian government acquires 20% in the telco, Sistema’s stake in the JV will decline to about 54%. But, Sistema will continue to have majority ownership and management control. There will be no changes in the Shyam group’s shareholding. It will continue to hold 24% in the JV. Other minority shareholders own the residual 2% in the telco. ET had first reported this deal in March 2009.

SSTL’s top deck had earlier told ET that it was looking to list the company on local bourses next year. Last year, the commerce ministry and Foreign Investment Promotion Board (FIPB), the apex government body that approves all major investments into the country from overseas, had cleared the proposal by the Russian government to buy 20% in Sistema Shyam for around $676 million.

The company has less than 1% market share in India’s 650-million strong cellular market. Investment from Russia comes even as new entrants, including SSTL and Norway’s Telenor, are struggling to make a dent in the world’s fastest-growing telecom market.

This is in sharp contrast to last year when customers had lapped up their services in the first two months of launch as these companies rode the price war and offered ultra low tariffs.

However, earlier this week, the Telenor Group reaffirmed that it would stay invested in its Indian subsidiary, denying international news reports that the biggest Nordic phone company was under pressure from investors to exit the loss-making Uninor.