Friday, 26 September 2014

Russia Billionaire’s Jailing Brings Out MTS Short Sellers

Photographer: Andrey Rudakov/Bloomberg
Russian billionaire Vladimir Evtushenkov, 66, maintains his innocence.
Traders are pushing bearish bets on OAO Mobile TeleSystems to the highest levels in a year on speculation the Russian phone company’s controlling shareholder will tap it for cash to settle money-laundering charges.
Vladimir Evtushenkov, who controls the wireless carrier through AFK Sistema, was denied bail yesterday after his arrest last week. The investment company may be asked to pay back billions of dollars in dividends it has received from OAO Bashneft, Evtushenkov’s oil company, BCS Financial Group and Raiffeisen Bank International AG have said. MTS, the billionaire’s least-indebted company, is seen as the most likely to be used to raise money for a potential settlement.
The number of MTS American depositary receipts borrowed for short selling to profit from a retreat was 4.95 million on Sept. 24, after
surging to 5.9 million shares last week, the most since August 2013, according to data compiled by Bloomberg and Markit, a London-based financial information provider. The shares have tumbled 10 percent since Evtushenkov’s arrest on Sept. 16.
“It looks more likely that Sistema may need to raise cash to settle the situation,” Slava Breusov, an analyst at Alliance Bernstein LP in New York, said by phone yesterday. “It would probably be able to raise several billion using MTS shares as a collateral. That increases risks for the shareholders.”
The phone company’s debt-to-Ebitda ratio was 1.3 as of June 30, data compiled by Bloomberg show. That compares with a ratio of 1.8 for Sistema and 1.4 for Bashneft.

Bail Proposal

MTS, Russia’s biggest wireless carrier, has not been implicated in the case against Evtushenkov and would be the most efficient vehicle through which he could raise cash if Sistema is ordered to pay back the dividends, said Sergey Libin, an analyst at ZAO Raiffeisenbank in Moscow who withdrew his buy rating on MTS after Evtushenkov’s arrest.
Evtushenkov, 66, maintains his innocence. The defense sought his release on bail of 300 million rubles ($7.8 million), according to the judge. His lawyer, Vladimir Kozin, declined to comment on the case’s potential impact on Sistema or its holdings.
The investment company may need to raise as much as $4.5 billion if ordered to return Bashneft dividend payments, according to ZAO Raiffeisenbank’s Libin.
“The most realistic way for Evtushenkov to raise cash is through MTS,” Libin said by phone yesterday. “That could result in higher debt, which would reduce free cash flow and, in turn, lead to lower dividends.”

State Allegations

MTS’s 12-month dividend yield was 8.3 percent yesterday, compared with 6.7 percent for OAO MegaFon, the nation’s second-biggest mobile carrier and an average of 3.6 percent for companies in the MSCI Emerging Markets/Telecommunication Services Index.
Sistema bought a controlling stake in Bashneft, the nation’s sixth-biggest oil producer, in 2009. Russian investigators in April opened a case linked to deals with Bashneft shares between 2002 and 2009, Sergey Makarenko, a lawyer for a former president of the Bashkortostan republic, said last month. Sistema’s shares in Bashneft were frozen in July.
The case against Evtushenkov “has no impact on MTS’s operations,” Nikolai Minashin, a Moscow-based company spokesman,’’ said by phone yesterday. Olga Gudina, a Sistema spokeswoman, declined to comment.
“MTS is not involved in this situation, even though it has the same owner as Bashneft,” Alexander Branis, the Moscow-based chief investment officer at Prosperity Capital Management Ltd., said by phone on Sept. 22. “We believe Sistema, even if it has to raise money on the market, will honor MTS shareholders’ interests.”

Stock Drop

MTS declined 1.7 percent to $16.65 yesterday. Its relative strength index was just above 30, a threshold some technical analysts see as a signal that a security is poised to rise.
The Bloomberg Russia-US Equity Index declined 1.4 percent to 82.14 yesterday. Sistema slumped 9 percent to 19.561 rubles by 11:08 a.m. in Moscow today, with Bashneft losing 2.3 percent to 1,300 rubles. The Russian General Prosecutor’s office said today it has filed suit to return Sistema’s shares in Bashneft to the state.
After his bail was denied, investors “now understand how much trouble Evtushenkov is actually in,” Rudolph-Riad Younes, co-founder and portfolio manager at R Squared Capital Management LP in New York, said by phone yesterday. “All of his assets are at risk.”
Evtushenkov’s fortune fell from $6.9 billion on the day of his arrest to $4.3 billion as of yesterday, according to the Bloomberg Billionaires Index. He is the richest Russian to face criminal charges since Mikhail Khodorkovsky, the Yukos Oil Co. founder who was arrested in 2003 and released last year.
“In a situation like this, corporate governance is the last concern for someone facing as much as 10 years in prison,” Alliance Bernstein’s Breusov said. “The goal is to get out of it, to leave the troubles behind at almost any cost.”

No comments:

Post a Comment