MTS Will Acquire Stake in MTS Bank
OREANDA-NEWS. October 31, 2012. Mobile TeleSystems OJSC (“MTS” – NYSE: MBT), the leading telecommunications operator in Russia and the CIS, announces its plans to purchase up to 25.095% stake in MTS Bank, known as the Moscow Bank for Reconstruction and Development (MBRD) prior to February 2012, following the signing of a non-binding indicative offer between MTS, MTS Bank and Sistema JSFC ("Sistema") (LSE: SSA), the largest diversified public financial corporation in Russia and the CIS and the majority shareholder of MTS and MTS Bank. The transaction would greatly enhance MTS’s ability to offer financial products and services to its nearly 70 million customers in Russia.
Under the proposed terms of the transaction, MTS would purchase up to 25.095% stake in MTS Bank through a share issuance by MTS Bank for up to 5.09 billion rubles1. Upon completion of the transaction, Sistema’s direct ownership in MTS Bank would decrease from 87.1% to 65.3%, while the balance of shares would be held by other shareholders.
The transaction has been approved by the MTS Board of Directors following the recommendation of the Special Committee of Independent Directors of MTS’s Board of Directors.
The completion of the transaction is subject to approval by the Boards of Directors of Sistema and MTS Bank and an Extraordinary General Meeting of Shareholders of MTS Bank and execution of definitive transaction documentation. The transaction is subject to certain regulatory approvals including antimonopoly and Russian Central Bank approvals, and expected to be completed in early 2013.
The proposed transaction is fully in line with MTS's 3i Strategy, which calls for the expansion into lines of business that complement its extensive telecommunications and retail networks. In 2010 MTS launched its Easy Payment service, which allows customers to transfer funds and make payments using money in their mobile accounts using SMS, mobile applications or MTS’s website. In April 2011, MTS, in partnership with MBRD, launched the MTS Dengi (MTS Money), a project aimed at providing customers throughout Russia with payment tools, including credit cards, near-field communications-enabled SIM cards and PoS (point-of-sale) credit. Future products include gift cards and virtual funds to enable purchases over the Internet. By the end of the year, MTS expects to enroll over 1 million customers to MTS Dengi services and help build a credit portfolio of 10 billion rubles. In parallel with the transaction, MTS and MTS Bank have agreed to conclude a commercial agreement whereby MTS would realize 70% of the proceeds from the MTS Dengi project.
In February 2012, MBRD, as part of a broad strategic commercial agreement, rebranded itself as MTS Bank and adopted the look and feel of MTS's internationally recognized brand.
Mr. Andrei Dubovskov, the President and CEO of MTS, highlighted: “MTS is extending its brand in financial services as an area complementary to its core business to take advantage of forecasted double-digit growth in the market for financial products and services in Russia, which remains one of the largest ‘unbanked’ markets in the world. The addition of financial products and services enable us to better monetize our asset base, including our telecommunications networks, our customer base in Russia and extensive mobile retail network of over 4,200 stores. Deeper cooperation with MTS Bank allows MTS to stimulate sales of smartphones in the retail network, increase customer loyalty and reduce churn through joint bonus programs with the bank. At the same time, we can further enhance our capabilities to develop mobile payments and mobile commerce platforms. The acquisition of a stake in the MTS Bank will permit MTS a greater voice in MTS Bank operations, while the Bank will benefit from additional resources to enhance its retail operations.”
Mr. Dubovskov continued, “Overall, by 2017, we expect financial products to contribute no less than 5% of our group net income.”
Citigroup Global Markets Limited has provided a fairness opinion to the Special Committee. Tax and financial due diligence was conducted by Ernst & Young, Liniya Prava ran legal diligence. Debevoise & Plimpton LLP acted as the legal advisor to the Special Committee.
MTS has also concluded an agreement with MTS Bank to provide a subordinated loan in the amount of RUR 2.1 billion. Terms of the ruble-denominated loan include a duration of 10 years at an annualized rate of 8.8%. The loan has been provided to finance development of the MTS Dengi project.
The terms of loan have been approved by the Central Bank of Russia and are consistent with relevant Central Bank regulations regarding subordinated loans.
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