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Svyazinvest

Company

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The company is liquidated in 2013. All its assets are attached to Rostelecom company.

Owners:
Rostelecom

Revenue and profit of the company

RevenueProfit
2009269 400 000---
2010271 600 000---
183000 employees in 2012

Assets

On October 1, 2013 JSC Svyazinvest and also 20 more companies (directly or indirectly controlled JSC Rostelecom and/or JSC Svyazinvest) were excluded from the Unified State Register of Legal Entities in connection with accession to JSC Rostelecom.

Office of Svyazinvest in Moscow
Office of Svyazinvest in Moscow

Assets

The assets which were earlier belonging to the company:

  • On April 1, 2011 seven interregional companies of communication and Dagsvyazyinform integrated based on Rostelecom. Svyazinvest received 43.4% in the new company,

At the beginning of December, 2010 the prime minister Vladimir Putin disposed to enter to authorized capital of Svyazinvest state-owned shares of operators "Central Telegraph", MMTS-9, Bashinformsvyaz, Chukotkasvyazyinform[1]. Assets will be transferred within half a year, in exchange the state holding will place additional share issue for benefit of the state.

Performance Indicators

2010

The consolidated management reporting, 2010: revenue – 271.6 billion rubles, net profit – 34.4 billion rubles.

2009

Revenue (2009) – 269.4 billion rubles, net profit – 23.5 billion rubles.

Council of directors

Board of Directors of 2011

  • On October 17, 2011 the extraordinary meeting of shareholders of Svyazinvest holding elected the structure of Board of Directors as a part of 9 people. The Deputy Minister of Telecom and Mass Communications Alexander Zharov and the co-manager of Trading France company, the prince Alexander Trubetskoy became new members of council. They replaced in council of the vice president of Rostelecom Sergey Lukash and the managing director VTB Capital[2].

Alexander Trubetskoy is a descendant of the Russian emigrants in France, the son of the prince Alexander Trubetskoy and Aleksandra Golitsyna. Earlier Trubetskoy worked in Thomson-CSF company where was engaged, including, deliveries of telecommunication equipment to the USSR. In Paris he got acquainted with the current Minister of Telecom and Mass Communications Igor Shchegolev who then was a correspondent of the TASS agency in France. "But more we were pulled together that we have mutual friends in Orthodox church, in particular, the prior of Sretensky Monastery father Tikhon (the archimandrite Tikhon (Shevkunov) - a comment of CNews)", - Trubetskoy told Interfax.

Also the prince is familiar with the founder of Marshall Capital Partners (MCP) fund who was the member of Boards of Directors of Svyazinvest and Rostelecom Konstantin Malofeyev. "We found with it a common language also thanks to the father Tikhon, - Trubetskoy told. - We often meet, for me it is very sensible, but basic businessman. The orthodox morals as well as the minister, by the way direct him".

The new board member of Svyazinvest Alexander Trubetskoy, the prince and the citizen of France, approached the minister Shchegolev thanks to friends in Orthodox church

Let's remind, after Shchegolev's arrival in the Ministry of Telecom and Mass Communications a number of key positions in Svyazinvest was occupied by natives of MCP, in particular, the former head of fund Alexander Provotorov became the president of Rostelecom. Last year the CEO of Svyazinvest Evgeny Yurchenko resigned, having motivated it with transfer of the center of decision making from holding in MCP.

Trubetskoy is a citizen of France. In the spring the prince submitted the application for obtaining the Russian citizenship and expects the solution of this question until the end of the year. However, the fact of foreign citizenship under the law is not an obstacle for entry into Board of Directors of Svyazinvest, CNews explained a source in the Ministry of Telecom and Mass Communications.

Updating of list of directors of Svyazinvest happened at an extraordinary meeting of shareholders of Svyazinvest in February, then seven of nine current members of council were elected. But in April the president Dmitry Medvedev prohibited profile ministers and Deputy Prime Ministers to be present at Boards of Directors of 17 state corporations, including Svyazinvest. Only the deputy minister was allowed to enter into councils, without occupying at the same time chairs of chairmen.

With respect thereto May the Ministry of Communications and mass communications suggested to replace Igor Shchegolev in Svyazinvest with Alexander Trubetskoy. But to the annual meeting of shareholders of holding which took place on June 30 the ministry did not manage to approve his candidacy, and instead of Shchegolev in council the president of VTB 24 Mikhail Zadornov was elected. At the meetings of the Board of Directors which took place since then professor of school of economy Ivan Rodionov was the chairman, the permanent chairman of the board was not elected.

The second the attempt of election of Trubetskoy was on September 22, especially for it the extraordinary meeting of shareholders of Svyazinvest was convened. Trubetskoy's candidacy was officially entered in the candidate list, but the meeting did not take place as the government did not publish the directive on vote to state representatives.

  • On February 16, 2011 Svyazinvest announced summing up an extraordinary meeting of shareholders at the choice of new Board of Directors. The meeting began still on February 10, but the protocol was not signed within a week: as the position of the government on vote by state-owned shares of Svyazinvest was unknown (75% minus one action).

The collision arose because the eighth person — the deputy head of Federal Agency for State Property Management Gleb Nikitin was added to the candidate list approved on February 7 by the prime minister Vladimir Putin in Board of Directors to seven candidates who are earlier offered the Ministry of Telecom and Mass Communications.

As the source close to shareholders of Svyazinvest explained CNews, the state representative could not vote at a meeting for Nikitin's candidacy. The matter is that this candidate formally was not proposed in advice to any of shareholders, and not included in the candidate list approved by Board of Directors in November as it is required by the Law "About Joint-stock Companies". However, the interlocutor of CNews added, Nikitin can be chosen in Board of Directors on annual meeting of shareholders of Svyazinvest in June.

Left Board of Directors of Svyazinvest the CEO of holding Evgeny Yurchenko and the managing director of Marshall Capital Partners fund Konstantin Malofeyev who became persons involved in the juicy scandal which burst last fall around Svyazinvest dismissed last fall.

The association on protection of the rights of investors (API) asked the government to check the charges brought by Yurchenko, having discharged at the same time of investigation him, Malofeyev and one more board member of holding, the managing director of MDM Bank Nikita Ryauzov (before creation of Marshall Capital Partners Malofeyev worked in MDM Bank).

Ryauzov also did not get to new council. Besides, there did not go to council the former Minister of Communications and the adviser to the president Leondid Reyman. One more member of council, the deputy head of Federal Guard Service Yury Kornev died last year.

Instead of them entered into council:

  • new CEO of Svyazinvest Vadim Semyonov,
  • president Renaissance Capital Alexander Pertsovsky,
  • CEO WEB Capital Yury Kudimov,
  • co-director of department of investment banking activity in global markets VTB Capital Mikhail Butrin,
  • president of Rostelecom Alexander Provotorov and
  • his deputy Sergey Lukash (two last candidates were proposed by Rostelecom which since the end of 2010 possesses 25% plus one stock of Svyazinvest).

The places saved:

  • Minister of Telecom and Mass Communications Igor Shchegolev,
  • board member of UBS bank Marlen Manasov and
  • professor of Higher School of Economics Ivan Rodionov.

"We are glad that the independent director Marlen Manasov remained in Board of Directors of Svyazinvest, - the deputy chief executive of API Denis Kulikov said. - However minority shareholders of "subsidiaries" of Svyazinvest" now are disturbed by Rostelecom more: On April 1, 2011 the operator integrates with the interregional companies of communication (MRK) entering into Svyazinvest, at the same time the Board of Directors of the united company is already elected and minority shareholders of MRK have in it no representatives".

Board of Directors of 2010

The structure of council elected annual meeting of shareholders of holding on July 12, 2010.

On August 20, 2010 at the first meeting of new Board of Directors of Svyazinvest the Minister of Communications Igor Shchegolev was elected its chairman. From nine members of council eight voted – at a meeting there was no associate director of Federal Guard Service Yury Kornev. Other participants voted unanimously.

Up to this point within 10 years since June, 2000 the post of the chairman was held by today's adviser to the president Leonid Reiman. He left it for several months in 2009 after he resigned from the post of the Minister of Communications, but then again returned.

Board of Directors of 2009

Board members of Svyazinvest on June 30, 2009 were elected:

  • Butrin Mikhail Robertovich, managing director of VTB-Invest Ltd;
  • Drozdov Sergey Alekseyevich, the senior vice president – the head of the Property complex of JSC AFK Sistema;
  • Leshchenko Mikhail Aleksandrovich, adviser to the Minister of Telecom and Mass Communications of the Russian Federation;
  • Malofeyev Konstantin Valeryevich, managing partner of a private equity fund of Marshall Capital Partners;
  • Manasov Marlen Dzheraldovich, board member of Yu Bee Es Bank Ltd;
  • Pridantsev Sergey Vladimirovich, president of JSC COMSTAR-OTC;
  • Reyman Leonid Dododzhonovich, Adviser to the President of the Russian Federation;
  • Rodionov Ivan Ivanovich, professor of GU "Higher School of Economics";
  • Ryauzov Nikita Dmitrievich, managing director of MDM Bank.

Management

Committees

On August 20, 2010 at a meeting of the Board of Directors in Svyazinvest the decision on creation of new control structures which were headed by board members is made.

On strategic development the managing partner of Marshall Capital Partners fund Konstantin Malofeyev, Committee on Audit - professor of Higher School of Economics Ivan Rodionov, personnel and compensation committee - the managing director of MDM Bank Nikita Ryauzov, and committee on corporate management - the board member "Yu Би Es bank" Marlen Manasov is elected the Chairman of the Committee.

System of motivation

Earlier at determination of an award the Board of Directors proceeded from seven financial and non-financial performance. And council could or not pay an award at all, or to double it, disorienting management. According to the solution of July, 2009 the award of the CEO of Svyazinvest Evgeny Yurchenko for 80% will depend on financial performance — profitability level on EBITDA, return on the invested capital (ROIC) and shares in the market of telecommunication services. For the last eight years this share decreased three times, the Deputy Prime Minister Sergei Ivanov worried in May.

The remained 20% of an award of the CEO of Svyazinvest will depend on target tasks (accomplishment of state projects and programs, etc.). Then such practice will be transferred also to "subsidiaries" of holding. The Board of Directors showed that for holding easily measured and distinct performance indicators of work become the main criterion for evaluation of management and that the company and its "daughters" in the work will be guided more by the interests of financial investors. After completion of reorganization of Svyazinvest which project the government commission approved at the end of May, 2009 introduction of a system of options for top managers is possible, he added.

Yurchenko who was present at Board of Directors told that the new remuneration system does not motivate it, approve several directors. This system was opposed also by the chairman of the board Leonid Reiman who refrained when voting — he stated a concern that management will have no motivation for accomplishment of socially important projects, one of directors of Svyazinvest notices. The decision is made, but also other directors objected, Reiman's representative parries.

Personnel

During 2009 the staff of Svyazinvest extended from 159 to 251 employees, said in his reporting. And fall of their 2010 was already 288, Semyonov in April, 2011 in an interview to Vedomosti said. But with approach of term of consolidation of Rostelecom and interregional companies of holding (took place in April, 2011) the employees who were engaged in operational management were transferred to Rostelecom. At the end of 2010 the staff of holding was cut down already up to 236 people, said in the reporting of Svyazinvest. By the end of their April, 2011 became 170, and until the end of the year the state will still be cut, Semyonov promised.

In 2009 in Svyazinvest 7.1% of employees or 14 thousand will be laid off human. Number of staff will decrease from 197 thousand to 183 thousand.

In 2008 reductions affected 14.3% of employees, number decreased from 230 thousand to 198 thousand people (-32 thousand employees).

In 2007 11.5% of employees - from 260 thousand were laid off to 230 thousand people (-30 thousand employees).

Wage fund

Expenses of Svyazinvest on compensation grew in 2010 by 78% — from 763 million rubles to 1.36 billion rubles, follows from the annual report[1]. Wages increase in April, 2010, in general on the company the made 20-25% became one of basic reasons of growth, the CEO of holding Vadim Semyonov explained to Vedomosti. Other reason — increase in number of staff of holding during 2010 for 30%, he told. For 2010 the main part of work on reorganization of assets of Svyazinvest dropped out, Semyonov reminds: the holding was faced by a problem of consolidation of subsidiary companies, and its department of merges and absorption was replenished with new employees, and specialists from this area traditionally belong to the category of highly paid.

One more reason of growth of expenses of Svyazinvest Semyonov calls change of a procedure of payments of remunerations to board members. In 2010 a considerable part of remunerations both for 2009, and for 2010 was paid to them. Follows from the reporting of Svyazinvest that in 2010 members of its Board of Directors and board received 452 million rubles against 232 million rubles the previous year.

Semyonov headed Svyazinvest in October, 2010. It replaced Evgeny Yurchenko who left holding together with the three deputies. Yurchenko and his deputies received compensation for early agreement cancelation, but these payments increased the total costs slightly, knows a source, close to holding.

The former Deputy CEO of Svyazinvest Victor Savchenko (who left along with Yurchenko), on the contrary, connects growth of costs generally with compensations to the left employees. To the CEO and his deputies compensation was calculated proceeding from 10 monthly salaries, he claims. Whether there were wages increases in April, 2011, Savchenko does not remember. "At me was definitely not" — he adds.

Salaries grew in 2010 and in other state companies, but not such rates. For example, Rosneft annually indexes the salaries of the employees, the representative Rustam Kazharov says it, but the coefficient of indexation depends on inflation indicators. According to Rosstat, in 2010 inflation in Russia was 8.8%.

Rosneft in the III quarter 2010 spent for the monthly salary of one employee on average 418,205 rub, the head company of Transneft — 408,000 rub, follows from their reporting under RAS. Svyazinvest on average in 2010 spent about 465,000 rub a month for the employee, follows from its reporting.

By the end of April, 2011 of employees was 170, and until the end of the year the state will still be cut, Semyonov promised. Respectively, and expenses of Svyazinvest on personnel will be cut down — to the amount smaller, than even in 2009, he told yesterday. It will occur including due to reduction of the size of bonus.

Investment program

47 billion rubles such is the investment program of Svyazinvest for 2010. According to holding, in the 1st half-year of investment made 15.8 billion rubles from which 46% went for broadband access in the Internet and IT, 43% – on a transmission line, 4% – on traditional telephony[1].

Contractors

Installation and construction works

In 2009 the companies of Infra (Regionstroy Ltd, Regionstroy-Siberia LLC, JSC Soyuz-telefonstroy, DSK LLC, etc.) became the main contractors of the enterprises of Svyazinvest for all installation and construction works in all regions, the CEO of Svyazinvest Evgeny Yurchenko[1] told Vedomosti]. And in 2010 they received 80% of order amount according to the investment program of Svyazinvest, or more than 13 billion rubles, Yurchenko says.

In the presentation of Infra it is said that now the companies of Infra occupy 30% of the market, and Svyazinvest — 90% in group revenue, but it is going to lower by 2012 this share to 55%.

Top managers of VolgaTelecom and Southern telecommunication company confirm that Regionstroy and "Union-telefonstroy" — their largest contractors. In 2010 the investment program of the companies of Svyazinvest grew and the main growth fell on these companies, tells one of them. About creation of "the large company" which is focused on accomplishment of orders of Svyazinvest, Sergey Beglyarov, the chairman of the board of directors of the company of a similar profile — SK telecom knows.

Next day after Yurchenko's interview the head Infra Engineering Sergey Ogorodnov said that at the end of 2010 revenue Infra Engineering from Svyazinvest group will make about 7 billion rubles. "As you can see, it is only the fifth part of the investment program of state holding (47 billion rub). As for structure of our revenue, in them 60% fall to the share of Svyazinvest, it is no more"[1].

Suppliers of IT

In July, 2011 it became known that 40% of IT expenses of Svyazinvest for 2010 fall on one supplier, Nvision Group company. Nearly a half of construction costs and upgrade of infrastructure the holding paid Infra Engineering companies[1].

Within check of Svyazinvest holding the Accounts Chamber found out that in 2010 operators of holding spent 19.2 billion for services of two suppliers. These are 39% of all investment program of holding in 2010 (49.8 billion rub).

It is about the Nvision Group system integrator which received 9.9 billion rubles (20% of the general investment program) from Svyazinvest and about the enterprises of Infra Engineering holding - 9.3 billion rubles (19%).

NVision Group

The dependence of NVision Group on Svyazinvest was lower than predicted. In the budget directive of NVision for 2010 receiving $649 million (18.2 billion rubles at a current rate) income from Svyazinvest was written that made 76% of revenue put in the directive in the amount of $850 million. In the forecast for 2010 smaller digits appeared: $438 million (12.3 billion rub) from Svyazinvest that would make 60% of the total amount of revenue in $727 million (data are provided from the presentation of the cancelled transaction on purchase of a blocking stake of NVision Group by Rostelecom).

As a result for 2010 revenue of integrator made 21.7 billion rub, thus, operators of Svyazinvest holding provided it only 45% of income. The source in NVision calls a similar share of orders of Svyazinvest - 40%. In general Svyazinvest spent in 2010 for implementation of IT and development of new services of 23.9 billion rubles, respectively, 41% of this amount are the share of NVision.

The Accounts Chamber also found out that on December 15 operators of Svyazinvest signed a number of contracts with NVision, dates of execution of works under which came earlier, than contracts were signed. And under some agreements on execution of works was allocated a little "incomparably" for time: for example, on upgrade of the Test Call Systems system installed in Rostelecom for number identification of the causing party 8 days were taken to networks of the called party.

The source in one of contractors of Svyazinvest explains it with the practice which developed in holding when formal contract signature is performed in the end of the year.

Infra Engineering

Other large supplier of Svyazinvest - Infra Engineering holding. The total costs of Svyazinvest of upgrade of communication networks, data transmissions and infrastructures in 2010 were at the level of 18.9 billion rubles, respectively, a share Infra Engineering in these costs makes 49%. Affirmed as the presentation of Infra Engineering that its enterprises service 80% of all contracts of Svyazinvest in the field of project and surveying and installation and construction works. At the end of 2010 Infr was going to earn $450 million, the share of orders of Svyazinvest made 90% in revenue of holding.

In 2010 the CEO of Svyazinvest of that time Evgeny Yurchenko claimed that the owner of Infra Sergey Ogorodnov acts for the benefit of Marshall Capital Partners fund which founder Konstantin Malofeyev was included into Board of Directors of Svyazinvest until recently. Malofeyev and Ogorodnov disprove it.

  • The Svyazyintek integrator created in 2004 especially for these purposes by the companies entering into Svyazinvest acted as earlier general contractor of works on informatization of Svyazinvest.

At the first stage of implementation the ERP system (2003-2006) by the general contractor the Open Technologies company acted. Further, in 2007 the project was transferred by GMCS.

Losses from "informatization"

In 2008 "subsidiaries" of Svyazinvest wrote off the cost of programs Oracle E-Business Suite and Amdocs for 2.77 billion rubles (taking into account adjustments of the former reporting). It follows from reports of interregional companies (MRK) of holding on IFRS. The amount of write-offs appeared above the forecast of Svyazinvest (2.02 billion rubles for 2008). In two years of MRK wrote off more than 3 billion rubles of cost of software Amdocs and Oracle.

Only the MRK, not written off anything, became North-West Telecom. Software implementation of Oracle will end in 2009, the representative Ella Tomilina explains it.

Purchase contracts and system implementation of management of Oracle for record $153 million MRK were concluded at insistance of the former management of Svyazinvest in 2003. The Deputy CEO Evgeny Yurchenko supervised implementation of "the unprofitable systems". It was supposed that installation of these software products will promote gain of centralized operation by regional network, will increase company performance. Letters to heads of MRK with information on necessary budgets on implementation of Oracle e-Business Suite and a possibility of involvement of these or those contractors also were signed by Evgeny Yurchenko. Minority shareholders and even managers of MRK were dissatisfied with the transaction. In a year Svyazinvest agreed to implement in MRK a billing system of Amdocs for $480 million. In 2004, explaining expediency of installation of billing from Amdocs, E. Yurchenko said: "Implementation of a single system of calculations will allow to consolidate financial and statistical information about the services provided by MRK and Rostelecom and will increase efficiency of their work".

Cost depletion of the Oracle MRK systems is explained with "redundancy of the user places" — for this reason 1.38 billion rubles are written off (16% of book value of software for the beginning of 2008). Licenses for 25% of employees were initially bought. And the cost of billing of Amdocs of MRK is written off as, implementing it is software, they capitalized a part of expenses on its technical support that is forbidden by international standards, the representative of Svyazinvest Igor Pshenichnikov explains. In addition business processes in MRK and the legislation changed and the performed works partially lost relevance, he says. In 2008 1.39 billion rubles of assets on Amdocs are written off (21% of their cost for the beginning of 2008).

History

2004: Blavatnik resells Soros's packet in the company to Yevtushenkov

In 2004 Access Industries of Leonard Blavatnik redeemed from George Soros 25 percent and one stock of Svyazinvest company for 625 million dollars, and two years later sold them to JSC Comstar-OTS for 1.3 billion dollars. Soros recognized afterwards that sale of shares of Svyazinvest to Blavatnik was his most unsuccessful transaction in career.

2008

Authorized capital of JSC Svyazinvest was formed by consolidation of the stocks of the joint-stock companies of telecommunication created in the course of privatization of the state enterprises of telecommunication fixed in federal property. The value of authorized capital of Svyazinvest exceeded 19.5 billion rubles.

Capital assets of Svyazinvest were 7 interregional companies, the operator of an intercity and international telecommunication JSC Rostelecom and institute in the field of design of means of communication of JSC Giprosvyaz.

The interregional companies entering into Svyazinvest owned more than 80% of telecommunication infrastructure of Russia and serviced more than 90% of the population of the country.

As of 1/1/2008 the regional companies (MRK) entering into Svyazinvest were operators of public communication networks with a mounted capacity more than 32.5 million numbers.

The companies of Svyazinvest owned licenses for rendering services of local, intercity and international telephone communication, data transmission; render ISDN services, wireless subscriber access and mobile communication.

2009: Reorganization start

Presentation: Justification of expediency of carrying out reorganization of JSC Svyazinvest and share purchase in the companies of the Svyazinvest group.

The presentation prepared by UBS company in January, 2009 for JSC Svyazinvest discloses details of strategy of the reorganization which is quickly developed in July-August, 2008 by the management of Svyazinvest. The reorganization aimed at providing interests of the state in the communications industry assumed the following benefits:

  • sales opportunity of the majority of potential synergies;
  • ensuring liquidity for all shareholders.

As basic option of reorganization it was offered to integrate JSC Svyazinvest and JSC Rostelecom. Such option most considered the interests of the state and state companies. Each of possible scenarios provided additional investments from the state, Svyazinvest or Rostelecom.

It was supposed that the share block of holding belonging at that time to System will be redeemed by either Svyazinvest, or Svyazinvest together with Rostelecom. In fact all shares were sold to Rostelecom. Such course leads to washing out of a share of the state in the company at the last stage of reorganization.

Further removal and consideration of offers of JSC Svyazinvest by option of the reorganization which is most considering the interests of the state was blocked by mister Leshchenko.

Concept of reorganization of JSC Svyazinvest

The concept of reorganization of JSC Svyazinvest in 2009 was submitted by management of holding for consideration of Government Commission on Transport and Communications. In the specified document the reorganization option at which first stage creation of the holding company based on JSC Rostelecom was supposed was reasonable. Increase in authorized capital of Rostelecom and placement of additional stocks by means of an open subscription with their further payment from JSC Svyazinvest was for this purpose offered by stocks of MRK. The possibility of bringing a share of Rostelecom in capital stock of MRK to 100% by redemption of stocks or accession was in the future provided.

Also it was specified in the document that the share of JSC Svyazinvest in ordinary shares will remain at the level of more than 50%. In fact such option of reorganization meant loss of the state control in the united company.

At the same time in the Concept even the reorganization option discussed at that moment between concerned parties which is most corresponding to the interests of the state which provided consolidation of JSC Svyazinvest and Rostelecom was not considered.

The choice not profitable to the state and Rostelecom of option of reorganization brought down stock quotations of Rostelecom during 2009 in more than 2 times.

Minutes of Government Commission on Transport and Communications

In the protocol all participants of this meeting which took place on May 29, 2009 under the chairmanship of Sergei Ivanov. The document confirms presence on Igor Shchegolev, Konstantin Malofeyev, Evgeny Yurchenko's action.

In the section devoted to the concept of reorganization of state holding 3 instructions, any of which does not set as the purpose preserving of a controlling interest of the state in the united company, are given. Besides, point 2 of the section "About the concept of reorganization JSC Svyazinvest recommends to approve reorganization model a join path of JSC Rostelecom with MRK.

The presentation on Board of Directors: Main stages of reorganization of Svyazinvest

The presentation contains comprehensive material, since a short profile of the Svyazinvest Group and finishing with the analysis of possible perspectives of reorganization, such as the expected benefit from consolidation and threat of loss of income in connection with development of the competition in the industry.

The document contains 3 main blocks:

  • Justification of need of reorganization;
  • Consolidation of the Svyazinvest Group;
  • Development in perspective segments of the market.

The analysis of a competitive environment and current situation of Group – in particular, performance indicators and profitability of business is presented in the first section. In the second section the expected benefits of consolidation, risks and the sequence of organizational changes are stated. Special attention is paid to assessment of sources of synergy. Stages of legal reorganization are detailed. In the third section attention is paid to different options of perspective development of Group. In addition to the strategic initiatives connected with expansion in traditional segments also steps on diversification to other segments and to an exit to international markets are considered. Foreign experience of transactions on restructuring is presented in applications.

Alas, in the presentation there is no information on a possibility of loss of the state control connected with change of the concept of reorganization and converting of preferred shares of MRK in voting shares of Rostelecom. Incompleteness of the provided information also allowed to change the reorganization course not for benefit of the state.

Exit of System from among shareholders

In September, 2009 the Government of the Russian Federation approved asset swap between the state and AFK "Sistema". The main subject of the transaction – a packet from 25% plus one stock of Svyazinvest holding which was sold in 1997 during the most scandalous in the history of Russia of privatization auction. It several times changed owners, and three years ago the packet for $1.3 billion was purchased by the Comstar-United Telesystems company under control of AFK "Sistema". However Comstar could not get access to management of holding, and last year System suggested the state to redeem a packet for $1.9 billion.

The state owns 75% minus one stock of Svyazinvest, and the government became interested in an opportunity to become the individual shareholder of holding, however the Deputy Prime Minister Sergei Ivanov set a condition: carry out the transaction in a cashless form. After that the option when Comstar gives to the state the share in Svyazinvest in exchange for debt relief before Sberbank was offered (it will be assigned for benefit of Vnesheconombank which became recently the shareholder of the Rostelecom operator entering into Svyazinvest) in the amount of 26 billion rubles and the share block of "Moscow City Telephone Network" belonging to Svyazinvest of 23% (MGTS, Comstar owned in it 55% of stocks). In 2006 Comstar wanted to redeem a share of Svyazinvest in MGTS, but the transaction was blocked then by Rosimushchestvo.

The auditor involved to assessment of assets Ernst&Young estimated the cost of a blocking stake of Svyazinvest at 23.7 billion rubles, and the cost of the transferred share block of MGTS – at 12 billion rubles. For compensation of a difference in 12.3 billion rubles. "System" was forced to transfer to Svyazinvest also 100% of stocks of the Sky Link mobile operator rendering services of cellular communication in CDMA-2000/450 standard and owning cellular licenses of the GSM standard in several tens Russian regions. Existence of GSM assets is relevant for Svyazinvest in the conditions of creation of the fourth mobile operator by holding, besides Sky Link has a right to use frequencies in the range of 2.1 GHz in Moscow and St. Petersburg based on which networks of third generation of cellular communication can be unrolled (3G). It is remarkable that System had in Sky Link of only 50% of stocks, the second half belongs to the "St. Petersburg" group of operators. The transaction between System and "St. Petersburg" will also pass in a cashless form as Sky Link has debts to both shareholders.

"Both parties of the transaction are the winner, - the expert of Finam Vladislav Kochetkov notes. - "System" got rid of an illiquid asset in the form of stocks of Svyazinvest which all the same did not give any additional opportunities, wrote off a large debt, released resources under development and increased a packet in MGTS, having brought out of a shareholding structure of the most influential minority shareholder on behalf of Svyazinvest. Disposal of Sky Link also has the advantages to System, Kochetkov as "what to do with this operator, the corporation, it seems, did not know" considers.

The presentation of management of JSC Svyazinvest on the Government commission on a question "About the step-by-step plan of implementation of the concept regarding reorganization of JSC Svyazinvest, December, 2009.

The presentation was intended to reveal the commissions on transport and communication the step-by-step plan of implementation of the concept of reorganization of JSC Svyazinvest. The presentation on the matter was taken out by management of state holding on the government commission on Sergei Ivanov's instructions from a meeting of May 29, 2009.

In the specified presentation there is no information:

  • about change of the model of reorganization of the Svyazinvest Group provided by the Concept approved by the Government commission a join path of JSC Rostelecom with interregional companies of communication;
  • about the planned converting of preferred shares of MRK in ordinary shares of JSC Rostelecom that leads to decrease in a share of JSC Svyazinvest in ordinary shares of JSC Rostelecom about more than 50.8% up to 43.4%;
  • need of involvement of additional resources of the federal budget and also means of state corporations VEB and DIA, for preserving of control from the state.

The note confirms legitimacy of removal of a question at vote, indicating, in particular, that development of a position for vote of representatives of Svyazinvest holding is within the competence of Board of Directors. The note is addressed to shareholders of all companies which are a part of state holding and has advisory nature. The common position of Board of Directors concerning vote is uniform for shareholders of all companies of holding – to vote for reorganization in the form of accession of MRK to Rostelecom in spite of the fact that the former concept approved by Vladimir Putin assumed only consolidation of Rostelecom with Svyazinvest that allowed to retain the state control in the united company.

Minutes of Government Commission on Transport and Communications.

At the meeting which took place on December 2, 2009 the question "About the step-by-step plan of implementation of the concept regarding reorganization of JSC Svyazinvest was considered.

Point 3 of the legal solution gave the direct instruction of the Ministry of Telecom and Mass Communications of the Russian Federation, JSC Svyazinvest together with the interested federal executive authorities to take the necessary measures directed to implementation of the Concept regarding reorganization of JSC Svyazinvest.

However later management of Svyazinvest made bypassing the Government the decision on converting of preferred shares of MRK in voting shares of Rostelecom. Besides, quite doubtful assessment of the companies of Group was the cornerstone of coefficients of exchange.

The explanatory note on the question "Development of a Position for Vote at General Shareholder Meetings …"

The note confirms legitimacy of removal of a question at vote, indicating, in particular, that development of a position for vote of representatives of Svyazinvest holding is within the competence of Board of Directors. The note is addressed to shareholders of all companies which are a part of state holding and has advisory nature. The common position of Board of Directors concerning vote is uniform for shareholders of all companies of holding – to vote for reorganization in the form of accession of MRK to Rostelecom in spite of the fact that the former concept approved by Vladimir Putin assumed only consolidation of Rostelecom with Svyazinvest that allowed to retain the state control in the united company.

2010: Yurchenko and Malofeyev's conflict

On July 28, 2010 the Minister of Economic Development Elvira Nabiullina wrote the letter addressed to the prime minister Vladimir Putin. Nabyullina is disturbed by change of structure of the transaction on the redemption from AFK "Sistema" 25% plus 1 stock of Svyazinvest: instead of VEB Rostelecom which "at the final stage of reorganization at consolidation of JSC Rostelecom and JSC Svyazinvest should repay the treasury shares received from share in Svyazinvest will act as the buyer, and it is fraught with state control washing out. Nabyullina suggested Putin to consider in addition a question of conditions and mechanisms of reorganization of Svyazinvest holding at the level of the government. On the letter there is Putin's resolution of September 10: "agrees" [1].

In August, 2010. The Russian President Dmitry Medvedev signed the decree on transfer of 100% of stocks of Ingushelektrosvyaz to state-controlled telecommunication holding "Svyazinvest". According to the document, Medvedev disposed to accept the offer of the Government of the Russian Federation on introduction as a contribution of the Russian Federation to authorized capital of Svyazinvest of 100% of stocks "Ingushelektrosvyazya, being in federal property, in a payment procedure of the additional shares placed by holding in connection with increase in its authorized capital. It can be a step on warning of washing out of a share of the state in Rostelecom consolidated company which in 2011 is going to be created within reorganization of JSC Svyazinvest.

Parameters of an additional share issue of Svyazinvest are at the moment unknown. However it is clear that if stocks of Ingushelektrosvyaz are entered by the state to authorized capital of holding as a contribution of the state, then the additional issue, most likely, will also be for benefit of the state. Having received additional shares, the state will increase the share in Svyazinvest in comparison with present 75% minus one action.

Such succession of events allows to assume that the decree of the president is directed to elimination of a possible situation when formation of joint Rostelecom by accession to it of eight regional companies of communication on the scheme implemented now can lead to loss of the state control over it.

According to the analysis which is carried out by specialists of the Ministry of Economic Development in case of the realization of the scheme of reorganization of Svyazinvest enabled now the state share in joint Rostelecom can make about 47% of the ordinary (voting) shares. In other words, the state can lose control in the company which part infrastructure telecom operators of Russia are. It is connected with emergence of mutual crossholding by Svyazinvest and Rostelecom actions of each other as Rostelecom is going to purchase from AFK "Sistema" 25% belonging to it now plus one stock of Svyazinvest, and Svyazinvest intends to take at Vnesheconombank 9.9% of shares of Rostelecom (in addition to already available 51% of stocks). At such structure of ownership loss of state control in Rostelecom is promoted also by increase up to 16.48% of a share in ordinary shares of Rostelecom of non-state owners of the former preferred shares of the companies of Svyazinvest after their converting in the stock of Rostelecom.

If as a result of an additional issue the share of the state in Svyazinvest increases, then influence of all these factors on structure of ownership will become another that is able to allow the state to save a share in joint Rostelecom not less than 51%.

On September 9, 2010 the CEO of Svyazinvest Evgeny Yurchenko resigned, but the next morning withdrew the application. He explained the actions a protest against transition of holding under the actual control of Marshall Capital Partners (MCP) fund which managing director Konstantin Malofeyev is included into Board of Directors of Svyazinvest, and a number of natives of fund hold key posts in holding, in particular, the ex-CEO of MCP Alexander Provotorov heads Rostelecom.

However the Minister of Communications and the chairman of the board of directors of Svyazinvest Igor Shchegolev managed to accept resignation and proposed as the candidate for a post of the head of Svyazinvest of the deputy director general of Rostelecom Vadim Semyonov, now his candidacy will be agreed with other departments.

On September 29, the Board of Directors of holding considered a question of convocation of an extraordinary meeting of shareholders on the matter. After death last week of the deputy administrator of the FSO Yury Kornev in Board of Directors of Svyazinvest there were 8 members, from them four are not connected with the state and state structures: Konstantin Malofeyev, board member of UBS Marlen Manasov, professor of Higher School of Economics Ivan Rodionov and managing director of MDM Bank Nikita Ryauzov. Besides, the former Minister of Communications Leonid Reiman, having resigned as the adviser to the president recently, can be also considered as the independent director.

  • On September 29 it became known that the Association on protection of the rights of investors (API) representing the interests of the minority shareholders entering into Svyazinvest holding of interregional companies of communication sent the letter to the first Deputy Prime Minister Igor Shuvalov in connection with a situation in holding. Announced a source in[1] API this CNews[1]. The association asks Shuvalov to promote creation of the commission of independent directors of Svyazinvest which would investigate the charges brought by the CEO of holding Evgeny Yurchenko.

The chairman of the board of directors of API Alexander Branis confirmed information on the direction of the letter to the government, having refused to discuss its contents as the letter "does not intend for public publicity". Yurchenko supports the offer of association and is ready to help investigation.

Rodionov reported to CNews that he is not familiar with an initiative of API. The source in one of "subsidiaries" of Svyazinvest considers actions of API illogical. "The association could organize the relevant committee from independent directors of Svyazinvest and without the aid of the government", - he says.

It is remarkable that the letter of API is directed to Shuvalov, but the Deputy Prime Minister Sergei Ivanov who is not supervising the communications industry though he is going to sign the directive of the government on vote at shareholder meeting of Svyazinvest on the issue of the choice of the CEO. The source in Svyazinvest assumes that the address was addressed to the first Deputy Prime Minister as he, being far from the events in the industry, can objectively understand the processes happening in it.

The president of Institute of national strategy Stanislav Belkovsky considers that the letter was sent Shuvalov because recently it had disagreements from the Ministry of Telecom and Mass Communications. "According to my sources, exactly Shuvalov lobbied the transaction on acquisition by Rostelecom (enters into Svyazinvest) NVision Group system integrator, however because of Malofeyev's intervention the transaction is postponed, - the political scientist claims. - As a result Shuvalov refused to sign the directive on Yurchenko's resignation and this matter was referred to Ivanov". Earlier Yurchenko said CNews that the deal with NVision was not closed because MCP began to require a share in system integrator.

  • The extraordinary meeting of shareholders of Svyazinvest made the decision on early termination of duties of the CEO of holding Evgeny Yurchenko and election on its place of Vadim Semyonov holding a position of the deputy director general of Rostelecom. On both questions pro voted as representatives of the state holding 75% minus one share of holding, and Comstar-United Telesystems company which still owned at this time 25% plus one action.

On September 29 the Board of Directors of Svyazinvest made the decision on convocation of shareholder meeting with the agenda on election of the new CEO of holding. A number of members of council did not support convocation of a meeting, however were forced to obey to the directives signed on the same day by the first Deputy Prime Minister Igor Shuvalov ordering to representatives of the state at a meeting of the Board of Directors and shareholder meeting to vote for change of the head of Svyazinvest.

The meeting had to take place in absentia from October 1 to November 3, but its results were summed up already on October 1. "Early decision-making was caused by the interests of the company which is at the moment in process of reforming, - the secretary of a meeting, the responsible secretary of Board of Directors of Svyazinvest Dmitry Afanasyev explained. - An unconditional priority during the vote for shareholders was strict observance of performing discipline in the course of reorganization, compliance to the diagram approved by the government and also ensuring transparency of activity of the management of holding for investors".

  • On October 5 Igor Shchegolev terminated the labor contract with Evgeny Yurchenko. Meanwhile, Yurchenko considers last meeting illegal as between convocation of a meeting and its carrying out there should pass 40 days. "This violation of my rights, I will protest such solution", - the detached head of Svyazinvest told CNews[1].

Copy of the order of October 5, 2010 on termination of the labor contract with Evgeny Yurchenko

The board member of Svyazinvest, professor of Higher School of Economics Ivan Rodionov also speaks about violation of the law about joint-stock companies. "The law not accidentally takes away 40 days before holding a meeting, during this time shareholders of the company and all concerned parties should develop the position, - Rodionov explained. - Such form as early holding a meeting, the law does not provide and the more so it is strange when the state company in this way behaves".

To other board member, the former Minister of Communications Leonid Reiman haste with holding a meeting is also unclear. "The meeting could be held at the scheduled time as it is accepted usually, especially in such large companies as Svyazinvest, - CNews told Reiman's words his representative. "If it was necessary to discharge as soon as possible Yurchenko, for this purpose there is a mass of opportunities, for example, to deprive of him right to sign, to appoint the acting as, etc.", - Ivan Rodionov adds.

  • Since October 6, 2010 Vadim Semyonov, the former vice president of Rostelecom works as the CEO of Svyazinvest. The contract of Yurchenko heading Svyazinvest since February, 2009 was terminated ahead of schedule.

Considered this solution of Yurchenko illegal — in particular because the order on his dismissal was signed not by the CEO as it is necessary, and the chairman of the board of directors —[1]. There are also other violations. Shareholder meeting took place in only two days after it was appointed by Board of Directors of Svyazinvest (on October 1 instead of November 3) though the law requires to notify shareholders on a meeting not later than 20 days. Also the protocol was ahead of schedule made: the law orders to make out it only after date to which the meeting is appointed.

Explicit procedural violations are allowed, Denis Kulikov, the chief executive of Association on protection of the rights of investors said to Vedomosti (API, represents the interests of minority shareholders of "subsidiaries" of Svyazinvest). In Rosimushchestvo to Vedomosti advised to address for comments in Svyazinvest. His representative Igor Pshenichnikov explained: the law protects shareholder rights, and shareholders of Svyazinvest do not consider that their rights are violated. Besides dismissal of the CEO of Svyazinvest — case of shareholders of Svyazinvest, but not its "daughters", the CEO of Rostelecom (one of shareholders of state holding) Alexander Provotorov believes.

But the matter is that shareholders of Svyazinvest ignored the recent open letter of API asking to postpone change of the power in holding until the facts read by Yurchenko are checked (see cutting), Kulikov explains. API suggested the first Deputy Prime Minister Igor Shuvalov to organize check of these facts, but there is no answer yet, he says. "I hope, as the government, and Board of Directors of Svyazinvest will follow offers of API and nevertheless will make investigation" — the chairman of the board of directors of association, the director of investments of Prosperity Capital Management Alexander Branis adds.

The letter of API is received and transferred to one of departments, the representative of the secretariat Shuvalova told Vedomosti. It the Ministry of Telecom and Mass Communications, the employee of federal state structure specifies. As of yesterday evening this letter did not come to the ministry, the employee of his press service shrugs shoulders. Anyway verification of loud statements of Yurchenko and replacement of the leadership of Svyazinvest — two processes not connected with each other, Provotorov considers.

2011: Deadlock of reorganization

  • On April 1, 2011 the first stage of reorganization was completed: seven interregional companies of communication (MRK) and Dagsvyazyinform controlled by Svyazinvest joined other its "subsidiary" — Rostelecom. At the same time the voting share of Svyazinvest in the united company was reduced from 51 to 43.4% as preferred shares of MRK were converted into ordinary Rostelecom.

  • In May, 2011 Government Commission on Transport and Communications will solve whether to continue reorganization of state assets, the CEO of Svyazinvest Vadim Semyonov told in April, 2011. The main option — consolidation of Rostelecom and Svyazinvest, know the official of federal agency and a source, close to Rostelecom[1].

Such merge can deprive the state of control over the company, the Minister of Economic Development Elvira Nabiullina worried in 2010: as Svyazinvest and Rostelecom hold shares of each other, there will be treasury shares which under the law should be repaid, and it will lower a state share (in Rostelecom it makes 53.2%: 43.4% — at Svyazinvest, 7.4% — at DIA and 2.4% — at VEB). Crossholding arose half a year ago when Rostelecom redeemed from Comstar 25% plus 1 stock of Svyazinvest. At the end of 2010 VEB capital counted all options of merge and came to a conclusion: that the state share did not decrease, the block packet of Svyazinvest should redeem from Rostelecom or VEB (or other agent of the state), or 100% "subsidiary" of Svyazinvest.

Consultations with VEB go, but, most likely, the second option will be selected, the official of federal agency considers. The matter is that VEB will not redeem a block packet of Svyazinvest at the price of 26 billion rubles which is earlier approved by the supervisory board of bank any more: the packet rose in price, and minority shareholders of Rostelecom will have enough voices (about 40%) to block the transaction if it seems to them unprofitable. Nevertheless the commissions will be provided both versions of the redemption of a block packet (both VEB, and "subsidiary" of Svyazinvest), tells a source, close to Rostelecom.

The issue of further reorganization of Svyazinvest is handled, the decision can be made after entering into Svyazinvest of new state assets, the representative of the Ministry of Telecom and Mass Communications says. In 2010 the president and the government disposed to enter a number of additional assets to the capital of Svyazinvest: 21.78% of Central telegraph, 28.24% of Bashinformsvyaz, 75% of Chukotkasvyazyinform, 100% of Ingushelektrosvyaz and 38% of MMTS No. 9.

  • Broad circulation on the Internet was received by the video with criticism of reform of Svyazinvest:

  • In July, 2011 it became known[1]that the block packet of Svyazinvest purchased by Rostelecom in October, 2010 from structures of AFK for 26 billion rubles was estimated for March 25, 2011 at 35.25 billion rubles, said in the report of Accounts Chamber according to the results of check of Svyazinvest. Thus, the state or its agent should pay for it 9.25 billion rubles more than if the block packet redeemed VEB as it was charged by the prime minister Vladimir Putin. And the state should redeem this packet from Rostelecom, otherwise after consolidation of Rostelecom and Svyazinvest it risks to lose control over the new company.

In September, 2009. Putin approved exchange of telecom assets with AFK: "System" gave to the state a block packet of Svyazinvest and 100% of Sky Link, and in exchange got rid of 26 billion rubles of a debt to Sberbank and received 28% of MGTS. Putin charged to redeem a block packet of Svyazinvest to VEB. But the bank considered that this transaction is connected with a significant risk. He wanted to achieve from Svyazinvest of the obligation to redeem own 25% plus 1 action afterwards. Instead in March, 2010 Svyazinvest offered the Ministry of Telecom and Mass Communications that instead of VEB its block packet redeemed Rostelecom because of "impossibility of operational accomplishment of conditions suspensive" and economic inexpediency of the option agreement. The structure of the transaction exchanged how the government created the position, the report says.

The option with participation of Rostelecom was considered as temporary, explains a source, close to Svyazinvest; it was supposed that then the packet will redeem after all VEB.

The risk of damage to the state contains also the option agreement on the redemption Svyazinvest at VEB of 2.4% of joint Rostelecom, the Accounts Chamber believes. Svyazinvest undertook to redeem these shares of Rostelecom in 2013 on 230 rub for an action plus 7.69% per annum. At such price on June 25, 2009 VEB and Deposit Insurance Agency (DIA) were redeemed at KIT Finance of 9.8 and 29.9% of ordinary shares of Rostelecom respectively (on the date of the redemption one paper cost 157.57 rub on MICEX). So the share price for Svyazinvest at the redemption grows to 300.66 rub.

The market value of these actions determined Ernst&Young for their redemption at KIT Finance for September 30, 2008 was 168 rub. But on December 22, 2008 Rostelecom concluded with the appraiser the additional agreement on assessment of investment share value, its lower bound and made 230 rub. However "investment cost cannot be used for the purposes of purchase and sale of shares", the Accounts Chamber believes. As a result of 40% of Rostelecom were redeemed nearly 18 billion rubles more expensively, than could — for 66.7 billion rubles instead of 48.7 billion rubles.

Check of Svyazinvest and Rostelecom was carried out by the auditor of Accounts Chamber Mikhail Beskhmelnitsyn. And his son Maxim Beskhmelnitsyn since May, 2007 heads the Kursk branch of CenterTelecom (since April 1, 2011 – branch of Rostelecom). The conflict of interest is available, the former CEO of Svyazinvest, the minority shareholder of Rostelecom Evgeny Yurchenko considers.

  • Shchegolev's proposals on reorganization

At the end of October, 2011 it became known that the head Ministry of Telecom and Mass Communications Igor Shchyogolev sent to the chairman of the state commission on transport and communication Deputy Prime Minister Sergei Ivanov of the offer on the next steps for reforming of Svyazinvest. Against the background of the continuing disagreements on this matter with the Ministry of Economic Development as Marker knew, Shchyogolev offers the option allowing to get moving forward at last the slowed-down process of reorganization of holding[3].

Stumbling block is transfer by the state to Svyazinvest in exchange for additional issue of its stocks of assets in several telecom operators. The Ministry of Economic Development strongly objects against a part of an additional issue was redeemed by Rostelecom having the right to make it as the owner of 25% plus one stock of Svyazinvest. Igor Shchyogolev specifies in the letter that acquisition of a share block of Svyazinvest at Rostelecom by Vnesheconombank (VEB) would provide to the state the greatest share in the consolidated company (Svyazinvest – Rostelecom), and suggests the Deputy Prime Minister to consider such possibility. Adoption of the proposal of Shchyogolev would mean return to the scheme of the reorganization of Svyazinvest approved by the government three years ago, but not implemented in practice.

The initial scheme reorganization assumed that the state as the first step should ensure full control over Svyazinvest in which at that time 25% plus one stock was owned by AFK "Sistema" on behalf of its "subsidiary" — Comstar company. It was planned that these shares will be received by state-controlled VEB, having in exchange assumed a debt of System to Sberbank in the amount of 26 billion rubles. However business dragged on, and in October, 2010 shares of Svyazinvest at Comstar were taken by Rostelecom which 51% at that time belonged to Svyazinvest. This purchase, having accelerated process of formation of joint Rostelecom by accession to it of interregional companies of communication, created at the same time a number of problems which effects are felt still. In particular, because of the fact that Rostelecom and Svyazinvest hold shares of each other there was a danger of loss by the state of control in the company after consolidation.

As one of means of prevention of such opportunity the government made the decision to transfer to Svyazinvest the state shares in five operators: Ingushelektrosvyaz, Bashinformsvyaz, "Moscow long-distance telephone exchange No. 9", Central telegraph and Chukotkasvyazyinform. For it Svyazinvest should give to the state the in addition issued shares that would increase ownership of the state in Svyazinvest to 77% of voting shares against present 75% minus one action. Such increase would secure from loss of the state control at merge of Svyazinvest to Rostelecom.

Cross participation of these companies in capital stock of each other has again an effect on this situation. Under the law Rostelecom has the right to redeem a quarter of additional shares which will be issued by Svyazinvest. But in this case the share of the state in Svyazinvest will remain the same, so, there will be also a risk of loss of state control after merge. The Ministry of Economic Development insists that Rostelecom cannot redeem additional shares of Svyazinvest, and does not negotiate a condition of share transfer of five operators from the state to Svyazinvest. The Ministry of Telecom and Mass Communications, in turn, specifies that it is impossible to interfere with Rostelecom in redemption of stocks of Svyazinvest: it would contradict the law and would reduce the cost of Rostelecom that can lead to claims from minority shareholders.

According to the Ministry of Telecom and Mass Communications, in case of refusal from redemption of stocks of Svyazinvest Rostelecom can suffer a loss in 6.9-11.5 billion rubles. Thus, the situation reached a deadlock though all terms of transfer of stocks of the operators to Svyazinvest determined by decrees of the President of Russia Dmitry Medvedev passed long ago. In the offers sent by the minister Shchyogolev to the Deputy Prime Minister Ivanov it is noted that at the forthcoming consolidation of Svyazinvest with Rostelecom the greatest control of the state in the consolidated company will be provided if 25% plus one stock of Svyazinvest are purchased from Rostelecom by VEB. At this VEB should refuse earlier signed sales agreement to Svyazinvest of 2.4% of voting shares of Rostelecom.

If this offer is accepted, at state structures on behalf of Rosimushchestvo and VEB all 100% of stocks of Svyazinvest will be concentrated, and crossholding of Rostelecom and Svyazinvest actions of each other will be eliminated. Then the question of participation of Rostelecom in the redemption of additional stocks of Svyazinvest will disappear by itself as Rostelecom will not be the owner of any stock of Svyazinvest any more and will lose the right to acquisition of additional stocks. Also it will be possible to transfer state shares in five operators to Svyazinvest and then to integrate Svyazinvest with Rostelecom, without being afraid of anything. However, VEB will have to fork up not less than for those 26 billion rubles for which Rostelecom in 2010 took shares of Svyazinvest.

Perhaps, purchase will cost VEB more expensively if results of independent assessment show that stocks of Svyazinvest rose in price since then. Shchyogolev considers that acquisition of 25% by VEB plus one stock of Svyazinvest corresponds to tasks of bank and will promote increase in capitalization of the belonging state assets. As consider in the Ministry of Telecom and Mass Communications, it is necessary to hold a meeting Sergei Ivanov's presidency for consideration of a possibility of purchase by VEB from Rostelecom of 25% plus one stock of Svyazinvest. As the minister on the sidelines of the World conference of the International Telecommunication Union in Geneva told, this question had to be considered in the middle of October, 2011 by Government Commission on Transport and Communications under the chairmanship of Ivanov, however commission session was postponed for an indefinite term.

  • Offer of Svyazinvest on reorganization

On November 14, 2011 it became known that Svyazinvest sent to Rosimushchestvo, the Ministry of Telecom and Mass Communications and Rostelecom of the offer on further reorganization of telekomaktiv of the state, told Vedomosti a source, close to holding,[4]. Their essence — to save the existing two-level management structure when the state controls Svyazinvest, and that is the largest shareholder of Rostelecom. The state holding suggests to use money which on one of scenarios Svyazinvest should direct to the redemption from Rostelecom 25% plus 1 own action for redemption of stocks of Rostelecom to increase a packet in it from 43.4% to control.

In the Ministry of Telecom and Mass Communications of the offer of Svyazinvest arrived, confirmed the source close to this department.

On April 1, 2011 the first stage of reorganization was completed: seven interregional companies of communication (MRK) and Dagsvyazyinform controlled by Svyazinvest joined other its "subsidiary" — Rostelecom.

In the nearest future departments should send the approved option of the second stage to the government. This week of the Ministry of Telecom and Mass Communications, the Ministry of Economic Development and Rosimushchestvo will hold a meeting to select this option, knows a source, close to the Ministry of Telecom and Mass Communications. However, the idea to be discussed with preserving of Svyazinvest, according to its data, will not be as the government already essentially agreed to integrate Svyazinvest and Rostelecom.

But there is a problem which complicates such merge — crossholding by actions. In October, 2010 Rostelecom participated in a packet deal between Svyazinvest and AFK "Sistema", having redeemed from AFK 25% plus 1 stock of Svyazinvest for 26 billion rubles. If now to integrate Svyazinvest and Rostelecom, then at the turned-out company treasury shares which under the law should be extinguished or sold are formed. Both threatens with state control loss.

The problem is solved if any state structure, for example VEB, redeems from Rostelecom 25% plus 1 stock of Svyazinvest, wrote before VEB capital. But VEB is not interested in such transaction especially as the market price of this packet is already higher than that on which it was bought a year ago by Rostelecom, explained to Vedomosti the sources close to Svyazinvest, Rostelecom and VEB. Other discussed option provides purchase of this packet by "subsidiary" of Svyazinvest. But then crossholding will remain — now between the united company and its "daughter", the CEO of Svyazinvest Vadim Semyonov noticed. Besides, estimation of Svyazinvest showed: that its "daughter" could service the credit which she should take 25% for the redemption from Rostelecom plus 1 action, and Svyazinvest — to perform the option for the redemption from VEB of 2.4% of Rostelecom, Rostelecom should pay generous dividends — about 50 billion rubles a year, Svyazinvest has no other sources of income.

The scheme which is offered by Svyazinvest saves crossholding by actions, but removes risk of loss of state control. If the state decides to privatize the telecommunication assets, it will be able to expose 75% of Svyazinvest on tender, considers a source, close to holding. One of board members of Rostelecom could monitor observance of interests of the state after privatization, according to him: passing of one director to council is guaranteed by a packet in 7.4% of ordinary shares of Rostelecom to which the Deposit Insurance Agency (DIA) holds now.

Exception of the list of the strategic enterprises

  • On December 12, 2011 it became known that for acceleration of reorganization of Svyazinvest the government commission permitted to exclude this company from the list of the strategic enterprises and to attach it to Rostelecom. According to Kommersant, is told about it in the letter of the Deputy Prime Minister Sergei Ivanov to the prime minister Vladimir Putin. The draft of the relevant decree of the president of the Ministry of Telecom and Mass Communications, it is entrusted to Ministry of Economic Development and Rosimushchestvo to prepare till February 1, 2012, Ivanov writes. To this term the specified departments and also VEB, Rostelecom and Svyazinvest should develop and provide specific mechanisms and terms of reorganization.

The edition source in one of the ministries says that Putin agreed with Ivanov's proposals. Order of the prime minister arrived in the Ministry of Telecom and Mass Communications. It is already defined what when entering state assets into Svyazinvest Rostelecom together with Rosimushchestvo will participate in additional issue of shares of Svyazinvest, reported in the press service of the Ministry of Telecom and Mass Communications. On the received 1.7 billion rubles Svyazinvest will be able to buy in addition 0.3% of Rostelecom, having increased the share to 43.7%. Now 75% minus one stock of Svyazinvest belong to Rosimushchestvo, the rest — to Rostelecom.

2013: Accession to Rostelecom

In June, 2013 at an extraordinary meeting of shareholders of Rostelecom accession to the operator of Svyazinvest holding was approved. 98% of the owners of 62% of stocks of the company who were present at a meeting voted for it, and accession will become the last stage in reform of holding.

Accession of Svyazinvest to Rostelecom allows to eliminate crossholding with securities. At the time of consolidation the state owns 75% minus one stock of Svyazinvest, and the remained packet belongs to Rostelecom.

It was reported that the share of Svyazinvest in Rostelecom will be extinguished, and on each 14 stocks of Svyazinvest it will be issued on one stock of Rostelecom. At the same time the share which will be received as a result by the operator will also be extinguished. At the time of consolidation Svyazinvest owns in Rostelecom of 45%, another 10% of stocks of the operator belong to the state directly and through VEB.

After reform the share of the state in Rostelecom will remain control. By calculations of CNews, it will make 51.2%. Having absorbed Svyazinvest, Rostelecom will receive control over a number of assets which were not attached to it, in particular, Central Telegraph, Chukotkasvyazyinform and Ingushelektrosvyaz earlier.

On October 1, 2013 Svyazinvest will be excluded from the Unified State Register of Legal Entities. The state control in Rostelecom after accession of Svyazinvest to it is retained: The Federal Agency for State Property Management and Vnesheconombank will possess more than a half of stocks of joint Rostelecom.

Notes