Daily analyst comments

It was reported on June 5 that the Federal Agency for State Property Management (Rosimushestvo) had cancelled the auction to sell off a 21.78% state-owned share package in Central Telegraph (Central), scheduled for June 13. The authority had expected to gain at least RUB 902 mn from the asset. The decision to cancel the auction was due to the government decree, issued in response to an initiative made by the Communications Ministry, that the share package should be handed over to Svyazinvest without auction, in exchange for the holding’s additional issue in favor of the state.

Given the security’s price on the RTS (RTS: CNTL) as of the June 5 final bell, 100% of Central Telegraph is valued by the market at USD 94.2 mn. However, the company’s most valuable asset, not priced in its stock valuation, is the building in Moscow downtown (7, Tverskaya ulitsa), priced by Penny Lane Realty at about USD 380 mn. Svyazinvest currently controls 51% of Central common shares, or 38.25% of its total share capital. Therefore, if the holding acquires another 22% of company shares, its total interest in Central could exceed 60%.

In our opinion, the decision to hand over Central shares to Svyazinvest without an auction is not to have any impact on the final outcome of the transaction, as Svyazinvest would have been the most likely auction winner. Now, the state holding could save nearly USD 30 mn, not a tremendous figure, but quite useful, given Svyazinvest’s future expenses related to the asset restructure and an option with Vneshekonombank. We regard the news as positive, but only to a limited extent.

Svyazinvest’s core asset is Rostelecom, around which the holding’s assets are to be consolidated. The fair value of Rostelecom (RTS: RTKM) as of year-end 2011 is USD 5.30 per common share with a 53% upside and USD 3.30 per preferred share with a 50% upside.