* Share price indicated in $20-$25 range
* Would value MegaFon at $11.2-$14.0 billion
* Around 17 percent of company being sold
By Megan Davies and Maria Kiselyova
MOSCOW, Nov 15 MegaFon, Russia's No.2
mobile phone operator, hopes to raise around $2 billion in an
initial public offering, it said on Thursday, launching a
marketing drive to investors with a pledge to pay an attractive
MegaFon, controlled since April by Russia's richest man
Alisher Usmanov, is focused almost exclusively on Russia and is
outpacing bigger rival MTS and smaller Vimpelcom
in a maturing, though still lucrative, mobile market.
But some analysts said it was setting an ambitious valuation
which could be a hard sell in a patchy IPO market, where the gap
in price expectations between buyers and sellers is wide.
"MegaFon should come at a discount to (peers) because it is
new," said Bruce Bower, a portfolio manager at Moscow-based fund
manager Verno Capital, though he added it should benefit over
time as the largest data operator among Russian mobile firms.
MegaFon said it aimed to sell global depositary receipts in
London and Moscow at around $20-$25 apiece, raising around
$1.7-$2.3 billion and valuing it at about $11.2-$14.0 billion.
At the bottom of the range, that would value the firm
broadly in line with MTS and Vimpelcom based on a multiple of
enterprise value to earnings before interest, tax, depreciation
and amortisation (EBITDA) forecasts for 2012, according to
Sergei Libin, a Moscow-based analyst at Raiffesenbank.
"Investors want to make money," said Otkritie analyst
Alexander Vengranovich. "Even if everyone understands that
MegaFon is an interesting story - at least not worse than MTS -
it does not make sense to buy it at fair value."
About 17 percent of MegaFon will be sold in the IPO if an
over-allotment option is exercised, according to a source close
to the matter. Nordic group TeliaSonera is cutting its
35.6 percent stake and MegaFon is selling treasury stock to cut
debt. Usmanov will retain control and not sell shares.
After months of inactivity, Europe saw a pick up in share
sales in October with companies including German insurer Talanx
, Britain's Direct Line and Telefonica
Deutschland successfully completing market debuts.
The market is still far from robust, however, with investors
unsettled by a faltering global economy and governments' need to
rein in deficits on both sides of the Atlantic.
MegaFon has also had some issues in the run-up to its
launch. Underwriter Goldman Sachs dropped out of the IPO, which
one source close to the matter said at the time was due to
unspecified shareholder concerns.
Usmanov is setting up a holding company for his assets
including MegaFon, which he will own with two partners, fellow
Arsenal soccer club shareholder Farhad Moshiri and Vladimir
Skoch, father of billionaire lawmaker Andrei Skoch.
A source said previously that if the ownership structure was
a concern to UK regulator the UKLA, another solution could be
sought. The UKLA gave MegaFon's IPO the green light last week.
A copy of the IPO prospectus, obtained by Reuters, showed
Usmanov would own 100 percent of the voting rights of the
MegaFon said it would pay an annual dividend of 50 percent
of net profit or 70 percent of free cash flow, whichever is
higher, provided its ratio of net debt to core earnings remained
in a range of 1.2-1.5. Analysts said that implied a dividend
yield of 7-8 percent, competitive against MTS and Vimpelcom.
Russia's mobile phone market is close to saturation, with
1.6 SIM card per person and growth has slowed to a single digit
percentage. But that compares favourably with many western
European markets and analysts see rich rewards from winning the
race to develop next-generation mobile services.
MegaFon beat its two New York-listed competitors in terms of
revenue growth and was on a par with MTS in terms of core
profitability in third-quarter results.
Following the IPO, Usmanov will continue to hold more than
50 percent of the company. TeliaSonera plans to keep a long term
stake of at least 25 percent plus one share. It expects proceeds
of 9-11 billion Swedish crowns ($1.3-$1.6 billion) from the IPO.
MegaFon has also reserved 5 percent of its shares for a
long-term incentive plan for its CEO Ivan Tavrin.
The investor roadshow is expected to end on Nov. 27 with
pricing, allocations and dealing in the shares starting the next
day. The IPO could be the biggest by a Russian company since
internet search group Yandex raised $1.4 billion in New
York in May 2011.