Posts Tagged ‘turkcell’

Ukranian power plays could benefit Turkcell

ukrtelecomUkraine‘s telecommunications sector is, potentially at least, in line for a major shake up, with plans to privatise a controlling stake in state-owned landline operator Ukrtelecom. Proposals to sell off Ukrtelecom have been around since the 1990s, with different formulas and percentages being floated at various times, along with varying assessments of the company’s net worth.

In the latest version of the plan to privatise Ukrtelecom, an open joint-stock company that holds a 70% market share of local landline operations, the government has proposed selling off it’s block stake of 67.79% of Ukrtelecom’s shares. Currently, the state has a 92.79% stake in the company, with the company’s employees holding a further 7.14%.

The government’s plan, announced in February by the State Property Fund (SPF), initially foresaw the privatisation process beginning in March, though this did not take place, casting some doubt on the timeframe for the sale.

Although it did not meet its own deadline to start the process, the government has recently put Ukrtelecom back on the agenda. During a visit to South Korea in mid-July, Prime Minister Yulia Tymoshenko called South Korean firms to place a bid for Ukrtelecom,as she pushes to attract Asian investment into the Ukrainian economy. This is part of a wider drive by Timoshenko to privatise a number of state owned assets, including 5 regional energy companies.

However, the government may have missed the boat if it is hoping for a substantial cash windfall from the sale of Ukrtelecom, with the company’s overall value having slipped badly in the past year. The stake in the company that is to be sold off was estimated to be worth around $3bn in 2008; current pricing puts it at around $940m, mainly due to the sharp fall in the local currency.

Its attractiveness as an asset has not been helped by Ukrtelecom recording a $194m loss last year, compounded by a further $32m worth of red ink in the ledger for the first quarter of 2009, a turn around from a net profit of $33m at current rates in 2007.

More likely to give potential suitors pause than the telco’s financial statements is the political cloud that hangs over the proposed privatisation, with President Viktor Yushchenko staunchly opposed to the sale. In February, after the plan to privatise Ukrtelecom was unveiled, a senior official of the president’s office said Yushchenko would do everything possible to block the sale.

Yushchenko and Tymoshenko, formerly close allies, are at loggerheads over numerous issues, including management of the faltering economy, combating corruption & ties with Russia. Having repeatedly blamed the Tymoshenko-led government of failing to protect the economy and the Ukrainian people from the fall out of the global financial crisis, it is no surprise that the president has opposed the sale of Ukrtelecom.

According to the SPF, there are at least 10 companies interested in bidding for the Ukrtelecom stake, though this assessment was made in March, and could be optimistic given the present variable political and economic climate. “Climate change” notwithstanding, one interested party is Turkey’s largest mobile phone operator, Turkcell (NYSE:TKC) which already has a presence in the Ukrainian telecoms sector, owning a controlling interest in Astelit, the country’s third-largest mobile services provider, which services 20% of the mobile market.

In mid-February, as discussions over the privatisation of Ukrtelecom again gained momentum, Turkcell’s chief executive officer, Sureyya Ciliv, said his firm was considering making a bid for the landline operator.

“It is an interesting situation but we need to understand the terms of the deal, and our teams are studying that. Based on the study, we will make a decision if we are a serious interested party who is willing to bid.”

What could be of more interest for Turkcell & the Ukrainian goovernment, is TeliaSonera looking at gaining a greater stake in Turkcell. The Swedish multi-national is eager to penetrate new markets in Eurasia & already has a growing fibre network building out in Ukraine. My view is that this has a greater chance of success than courting Asian investors to come into the Ukranian market, time will tell.

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Turkish Delight

turkcell93cb582593bb5953by Turkcell  (NYSE – TKC)  recently managed to outbid global giant Vodafone  (NYSE – VOD) for the fastest 3G licence in an auction that looks as though it will realise a total of $1Bn for the Turkish government. Although a far cry from the 3G auctions that occurred in Western countries in the mid 90’s, this will be a welcome fillip for the Turkish economy.

The government had made regulatory changes to induce Turkcell’s competitors to bid, including the introduction this month of portability reform – allowing customers to switch mobile operators while keeping the same phone number. Turkcell agreed to pay €358m for the first 3G licence, which is for spectrum at the 40 megahertz band. Vodafone offered the minimum price of €250m for 35MHz. Avea, owned by Turk Telekom, offered €214m, also the minimum price, for €30MHz.

During the 3rd Quarter of 2008, Turkcell reported a year on year growth of 19.3%, comfortably breaking many analysts estimates. With the acquisition of the 3G licence bringing increased coverage levels, it is expected that Turcell will acheive some strong customer acquisitions in its homeland, where it has a track record of eliciting above average ARPU from its users base. Currently sitting at $13.91, the ADR has attracted a number of buy ratings, with a  6 month target of $16.22.

Meanwhile, Turkcell is looking abroad for even further expansion, its relative financial muscle in the region could see it picking up Macedonian operator Cosmofon within the next three months, although there is competition from Telekom Austria & also Slovenjie Telecom, both of whom are also looking to secure further business in the Balkans & Black Sea Basin. It already has holdings in Azercel (Azerbaijan), Geocell (Georgia). K’cell (Khazakhstan) & Moldcell (Moldovia) through its international joint venture Fintur.  In Ukraine, Turkcell operates the third largest mobile operator Life :), through its Astelit operation. Life:) has been making some serious inroads into the Ukrainian market, more than doubling its subscribers in 2007.

 Standard & Poors upgraded Turkcell’s foreign currency rating from BB to BB+ in early November, which can only bring encouragement for investors.

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