OREANDA-NEWS. September 16, 2009. MTS decided against bidding for a third operator in Kazakhstan. The company operates under the brand of Neo with about a 6% market share, reported the press-centre of OTKRITIE FC.

View: According to MTS, the business does not return positive net present value at the MTS required rate of return (25%). The operator still needs substantial capital investments and a few years of price subsidies. MTS was also unhappily surprised by the size of the company’s debt. The fate of the privatization of Neo is important for the existing operators, among which Vimpelcom has a 43% share. Should the privatization take place, some aggressive pricing from Neo is likely. On the other hand, if the privatization is not successful, the Kazakhstan government is likely to deleverage Neo, which could make the business profitable even without aggressive pricing.

Action: The news is marginally positive for both MTS and Vimpelcom. However, we do not expect their stocks to react, and reiterate our HOLD rating for both.