Daily analyst comments

It was reported on June 7 that two high-ranking officials had both spoken about the possible fate of Svyazinvest on the sidelines of the ongoing 12th Economic Forum in St. Petersburg. Alexei Kiselyov, general director of the holding company, deemed it necessary to privatize the company within 12 months in view of the stiff competition on the market that could squeeze its units out of the market.

At the same time, Economic Development Minister Elvira Nabiullina stated that state agencies (probably the Economic Development and Communications and Press Ministries) are working on options for reorganizing Svyazinvest.

On the same day, shares in many telecom companies rallied amid the news. In particular, common shares in Rostelecom gained 2.6% and Uralsvyazinform shares went up 2.7%. Some investors may have taken the news as a signal that the company's privatization process is gaining momentum.

We would like to damp down traders' enthusiasm as no serious signs have emerged in recent months that the state holding company would be privatized or seriously reformed. The reason lies in the absence of forces that could get the process moving – a process which began more than ten years ago. Moreover, the new telecoms minister has not yet voiced his position on the company's privatization, while Leonid Reiman, the previous telecoms minister, was an outspoken advocate of the company's privatization.

As we have said before, the Russian authorities have pursued a course of nationalization in recent years, establishing large state holding companies that bring together private firms, and in view of runaway inflation, it is highly unlikely that the state would want to cede control of socially significant industry to private hands. Svyazinvest's decision to give up earlier announced tariff hikes on phone services is a vivid example of this process (see daily of March 25, 2008).