09:35 25.11.2019

MTS selling Ukrainian business for $734 mln, to pay 26.5 bln rubles in special dividends

3 min read
MTS selling Ukrainian business for $734 mln, to pay 26.5 bln rubles in special dividends

PJSC MTS, Russia's leading mobile provider is selling its telecommunications business in Ukraine, which operates under the Vodafone brand, to an Azerbaijani provider, and the Russian company's shareholders will receive special dividends as a result of the deal.

MTS said in a press release that it has signed a legally binding agreement with Telco Solutions and Investments LLC, which is controlled by Azerbaijan's Bakcell LLC, to sell its telecom operations in Ukraine.

Under the agreement, MTS's wholly-owned Luxembourg subsidiary Allegretto s.a.r.l. will sell its 100% stake in its Dutch subsidiary Preludium B.V., the sole shareholder of VF Ukraine PrJSC, for cash consideration of $734 million, including an approximately $84 million earn-out. The transfer of the company shares is expected shortly, MTS said.

Concurrently, on November 23, the MTS board of directors recommended special dividends in the amount of 26.48 billion rubles, or 13.25 rubles per ordinary share (26.50 rubles per ADR), for the first nine months of 2019, taking into account the deal and the company's financial results.

The board of directors recommended setting December 6 as the date of record for participating in the extraordinary general meeting and January 10, 2020 as the date of record for receiving special dividends.

MTS head Alexei Kornya was quoted as saying that the deal is in line with the company's updated strategy, "which envisages a concentration of efforts in the Russian market." Russia generates over 90% of the operator's revenue.

"In light of the Ukrainian business's insignificant share within the group, MTS will maintain an attractive level of dividend payouts as part of the policy adopted at the beginning of the year," Kornya said.

Information about the sale of Vodafone Ukraine emerged over the summer. Kornya said then that MTS did not need to sell its subsidiary, as the latter's operating and financial results were good. In October, it was reported that the Azerbaijani operator Bakcell had submitted a request to purchase the asset. It was approved on October 24.

Earlier in November, Kornya said that the company was in talks on the deal but that no agreement had been reached.

Vodafone Ukraine saw its net profit fall 18.1% in 2018, to 1.8 billion hryvni. The company described this as being due to increased expenses associated with the rollout of 4G and 3G networks.

MTS's geography has shrunk significantly over the last three years. In 2016, it wrapped up its business in Uzbekistan, selling it for a symbolic $1 due to proceedings involving the American regulator, which suspected MTS and VEON (previously Vimpelcom Ltd.) of taking massive bribes in exchange for the opportunity to enter the local telecom market.

In 2017, MTS left Turkmenistan after Turkmentelecom, the national operator, decided not to prolong the sides' cooperation agreement, leading to disrupted international and inter-city service and Internet access. The MTS subsidiary's permission to use frequencies also expired at that time. In 2017, MTS recorded a loss of 3.2 billion rubles due to the impairment of assets in Turkmenistan.

In Ukraine, MTS began using the Vodafone brand due to fears of sanctions.

After the deal is closed, MTS will have two foreign assets, in Belarus (it owns 49%) and Armenia (100%).

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