Russia’s MegaFon Preparing Biggest IPO since Facebook

on Sep 5, 2012
Updated: Feb 9, 2024
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MegaFon, one of Russia’s “Big-3” mobile phone operators, is planning the world’s biggest initial public offering since the Facebook launch back in May. The company, controlled by Russia’s richest oligarch Alisher Usmanov, plans to list 19.9 percent of its stock amounting to 123 million shares in a projected $20 billion (£12.6 billion) flotation.

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MegaFon holds 27 percent of the mobile market share in Russia and is the only Big-3 company to remain in private hands up to now. It was the first Russian mobile operator to announce the launch of a 4G network, which provides higher internet speed and has the advantage of being compatible with earlier generation networks such as 3G and GSM. “We are expecting about 50 thousand of our customers to be using the 4G network by late 2012”, said Natalia Spitsina, Megafon’s Moscow Commercial Director.

As a result of a takeover deal in April, Usmanov’s AF Telecom bought Mikhail Fridman’s stake in Alfa Group, the holding company for MegaFon, for $5.2 billion (£3.3 billion) in cash, increasing its holding in the company from 31.1 to 50 percent plus one share. Swedish Teliasonera owns 35.6 percent and the remaining 14.4 percent of issued capital is held by the company as treasury stock.

!m[](/uploads/story/337/thumbs/pic1_inline.png)“Megafon looks attractive because it is the leader on the Russian mobile internet market,” said Sergei Libin, an analyst at Raiffeisen bank in Moscow.
The 123 million shares to be sold in the IPO will partially come from Teliasonera reducing its holding to 25.1 percent and the balance from the company’s treasury stock. The float could raise as much as $4 billion (£2.5 billion), further adding to Usmanov’s already impressive $18 billion (£11.35 billion) fortune. It will also be the largest Russian IPO since state controlled VTB bank raised $8 billion (£5.04 billion) in 2007. Market rumours put Goldman Sachs and Morgan Stanley as leading underwriters with other banks involved including Citi, Credit Suisse, Sberbank and VTB. The precise date for the float remains unknown with CEO Ivan Tavrin signalling that postponements are possible because of the difficult market conditions.

According to Kommersant Financial, MegaFon has also been looking at buying a stake in handset vendor Euroset. If a deal is struck, Usmanov’s company could soon lead cellphone retail sales in Russia. Alexander Mahmut, Euroset’s co-owner, has been looking for a buyer for his 50.1 percent stake since last December and it’s now looking likely that MegaFon and other Usmanov vehicles will acquire half of the total Euroset shares on issue for some $1.25-$1.35 billion (£757-£819 million). Vimpelcom, an emerging markets telecoms operator, has apparently signalled its interest in picking up the other 0.1 percent.

Born in Uzbekistan, Mr Usmanov is known for being keen on investment opportunities in the United Kingdom, including the Arsenal football club. To date, the Russian oligarch has managed to build a stake of almost 30 percent in the club, although the majority interest remains in the hands of US billionaire Stan Kroenke.
Usmanov is reputedly on very good terms with the Kremlin, which reduces a tangible political risk common for Russian investments. The Russian oligarch seems to not take Kremlin’s favour for granted, as he spent more than £27 million in 2007 to buy the art collection of the late cellist Mstislav Rostropovich before donating all 450 works to the Russian state.
In recent years, other prominent Russian companies have come to London for a stock exchange listing, seeing the City as a good place to raise capital. Examples are oil producer Rusptero, internet firm Mail.ru and mining groups Polyus Gold, Nord Gold and Evraz. Some City observers have expressed concern about buying shares in such foreign companies, especially if only a small stake is listed on the exchange.

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