MTS may sell its tower infrastructure to a consortium of investors

Telecom operator MTS has resumed negotiations on the sale of its cell towers: one of the possible buyers could be a consortium of investors, which will include AFK Sistema. According to Kommersant, the parent structure of the operator will have a non-controlling stake in it. Previously, the structures of Ivan Tavrin and Service-Telecom, associated with the founder of Cordiant Vadim Gurinov, were interested in purchasing the MTS asset. Analysts believe that given the high Central Bank rate and the corresponding cost of debt, the tower company will not be able to be sold to one specialized investor, so a consortium is a logical option.

Kommersant’s sources in the telecom market said that MTS has resumed negotiations on the sale of its tower business. According to him, one of the possible options could be to optimize the structure of MTS by transferring the tower infrastructure to AFK Sistema (owns 42.09% of MTS) for further sale. However, another source clarifies that now we are talking about a possible sale to a consortium of financial investors, including AFK, “which may have a non-controlling stake in the consortium.” According to him, the parameters of the deal and specific shares have not yet been approved, negotiations are ongoing. MTS and AFK Sistema declined to comment.

MTS allocated tower assets to Tower Infrastructure Company LLC (the portfolio includes about 23 thousand antenna mast structures, AMS) in September 2021. The company planned to sell the asset in the first half of 2022, but due to the uncertainty that arose in the market as a result of the military operation in Ukraine, the negotiations were postponed (see “Kommersant” dated April 26, 2022).

Previously, Kommersant’s sources named Service-Telecom (75% from Galina Gurinova, the wife of Vadim Gurinov, the founder of Cordiant) and New Towers (owned by Ivan Tavrin’s Kismet Capital Group) among the main interested parties for the purchase of MTS assets. Service Telecom and New Towers did not comment on the possibility of participating in the consortium. One of Kommersant’s interlocutors in the telecom market admits that, given the current exchange rate and the overall economic situation, MTS was unable to agree on the sale of an asset to a specialized investor, so the option of a consortium is now being discussed.

The deal to sell the tower portfolio will reduce MTS’s debt, notes Alexey Kupriyanov, director of the investment bank Aspring Capital. “In the context of a high Central Bank rate and high debt costs, it is difficult to sell a tower company at the double-digit multiples that we had recently. Most likely, this is a multiplier of less than 10, while MTS will probably retain the opportunity to regain operational control over the asset, which is standard practice for such transactions,” says Mr. Kupriyanov. In his opinion, the consortium format being discussed is an opportunity for an investor to enter an asset with growth potential at an acceptable valuation.

Monetization of MTS assets will allow AFK Sistema to count on additional or at least non-reducing dividends from the operator, says Timur Nigmatullin, senior investment consultant at Finam.

Chief analyst of the Regblock company Anna Avakimyan believes that if MTS tower assets are transferred to AFK, the operator’s return on assets will increase and leverage (the ratio of debt to equity capital) will decrease; “the MTS tower infrastructure itself can be valued at 90–120 billion rubles. ” At the same time, senior analyst at BCS World of Investments Maria Sukhanova believes that the current environment with high interest rates, exchange rate volatility and uncertainty about the timing of the mass launch of 5G “does not lead to an attractive valuation of the asset.” The analyst notes that “the company’s debt burden is now moderate (1.8 net debt / EBITDA without rent at the end of the first half of the year, net debt 416 billion rubles) and there is no urgency to sell the towers.”

Yulia Tishina