Daily analyst comments

July 20 was the last day when Sibirtelecom shareholders could offer their equities for a buyout within the Svyazinvest restructure. According to RBC Daily, about 8% of the company’s total share capital has been made available for a buyout, worth RUB 1.5 bn. No detailed information about how many common and preferred shares were offered is available so far.

In accordance with law, a joint-stock company can allocate to share buyback up to 10% of its RAS net assets for the last reporting period. With Sibirtelecom, this is just slightly less than RUB 1.9 bn. It is possible to assume, therefore, that the equities offered by Sibirtelecom shareholders will be bought out in full, and the money limit reserved for this purpose will not be completely exhausted.

In view of the price offered for the equities by Sibirtelecom (RUB 1.85) and the current market value of company securities (RUB 1.853 per common and RUB 1.59 per pref), we assume that the bulk of the shares offered for a buyout are preferred. In the meantime, we note that preferred shares account for 24.55% of Sibirtelecom total share capital. Therefore, less than 1/3 of company preferred stockowners have decided to take advantage of the difference between the price offered and the security market cost, which demonstrates the long-term nature of investors’ goals, their trust in the issuer and confidence in what Svyazinvest management has said regarding the restructure. The news is definitely positive for Sibirtelecom, in terms of both financial savings, as the company should be able to save nearly RUB 400 mn of the buyout limit, and support given by company shareholders to the restructure idea.

Given that Sibirtelecom (RTS: ENCO) equities are to be swapped for common shares of Rostelecom (RTS: RTKM), we give a year-end 2011 estimate for the united Rostelecom: USD 5.30 per common share with a 51% upside and USD 3.30 per share with a 40% upside.