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Uzbek Court Unfreezes MTS Assets

Monday 12 November 2012

MOSCOW (Reuters) – An Uzbek court has reversed a ruling confiscating the local assets of Russian mobile phone operator MTS, giving chance it could yet restart operations valued at $1 billion in Central Asia’s most populous country.

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MTS chief executive Andrei Dubovskov said in a statement that the verdict cleared the way for moves to find a solution that settled the previous differences and was “mutually beneficial to all parties”.
The company has said it is just the latest foreign player to be on the end of a “classic shakedown” by officials in the gas-rich republic, pointing to the withdrawal of London-listed Oxus Gold, U.S. firm Newmont Mining Corp and Russia’s Wimm-Bill-Dann, now part of PepsiCo.

In a ruling handed down on Thursday, the court also enjoined MTS to pay some $600 million in fines within eight months and ruled to bring in the operator as a civil defendant in a criminal case against its four local employees. But it overturned a earlier judgement ordering the confiscation of MTS assets. Previous fines had amounted for $900 million.

MTS had appealed against the nationalisation of its Uzbek assets after its operating licence was withdrawn earlier this year and a 2.5-year “corrective” labour sentence imposed on its managers.

MTS, which had taken a $1.1 billion write-off in August in connection with the Uzbek licence withdrawal, said it had yet to decide on its next moves in Uzbekistan. But business daily Vedomosti, which cited a source at MTS parent company Sistema, said MTS was hoping the fines would be reduced.

Fines too high

MTS’ Uzdunrobita unit accounted for 3.6% of MTS’ total sales and 4.5% of its operating income before depreciation and amortisation last year. As recently as the middle of this year it was the market leader with around 9 million clients.

Analysts said that the chances of MTS returning to the market were still low. “It is premature to assume that MTS will restore its operations in the country, as the $600 million fine seems too high, given that it is almost half of the value of this asset,” said Anna Lepetukhina, an analyst at Sberbank-CIB.

MTS spokeswoman Yelena Kokhanovskaya said a reserve it had made previously as part of the $1.1 billion write-off would cover potential fines. Uralsib analysts said even if MTS managed to return to Uzbekistan, it would still be unlikely to fully restore its market position.

According to Russian market research firm AC&M, Vimpelcom – MTS’s main rival in CIS markets – increased its Uzbek subscriber base to 9.2 million by the end of September from 7 million in June.

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