Further developments in the Russian market – MegaFon prepares towers for market

Hot on the heels of Vimpelcom’s news, a second Russian MNO appears to be preparing to bring its towers to market

According to Russian business daily newspaper ‘VedomostiMegaFon, Russia’s second biggest MNO, has spun out its towers into a separate business, with a view to divestment in the near future. This news comes within days of reports in the Russian press that competitor BeeLine (owned by Vimpelcom) has appointed Merrill Lynch to oversee the sales process of around 7,000 towers in Russia, potentially sparking a race to be first to market.

Should MegaFon find a suitable buyer and a price which meets their expectations, they could expect to raise tens of billions of roubles, but by spinning out their towers business, there is also an opportunity to develop the business further towards an IPO, as successfully achieved by Telecom Italia with their Inwit business unit, which was valued at €1.95 bn after an IPO in Q2 2015.

In the event of a sale and leaseback, the most obvious counterparty for MegaFon’s towers is established Russian player, Russian Towers, whose Chairman Peter Owen Edmunds commented MegaFon is already a valued partner and client of Russian Towers who use our service and we have worked successfully together on a number of projects across the Russian Federation. As the leading independent tower company in Russia we maintain dialogue with all mobile operators in the market and we stand ready to work with them in any tower disposal going forwards.”

Russian Towers’ appetite for both the full portfolios of both Vimpelcom and MegaFon’s passive infrastructure may well be limited, however, particularly in well-served urban areas where high levels of duplication are probable. This may well result in a race to be ‘first to market’ for both Vimpelcom and MegaFon, in order to achieve the best possible valuation for their tower portfolios, and puts Russian Towers and any other credibletowercos interested in the market, in a strong position to create a strong nationwide portfolio.

Whatever the shape of the outcome, a Russian towerco’s ability to increase their tenancy ratio rapidly should be good; with significant infill needed in urban areas and Tele2’s presence in the market as a well-funded,politically favoured new entrant investing aggressively in their network and looking for coverage expansion where possible.

Although both tower sales and the formation of infracos have been mooted in Russia before, nothing has come of it. TowerXchange believes that this new element of competition may well be the catalyst needed to launch what will be a very exciting part of the European market.

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