Sistema to scale down its India exposure

Won't put in more money, irrespective of SC decision on curative petition

Just a day after telling news agency Bloomberg it was prepared to spend “billions this year in India if the government ensures security of our investment”, Russian conglomerate AFK Sistema told global analysts it had no intention of making more investments in the Indian telecom space.

Sistema, in fact, said it intended to “significantly reduce exposure to India”, irrespective of the Supreme Court’s (SC’s) decision on the curative petition filed by its Indian joint venture Sistema Shyam Teleservices Ltd (SSTL).

The SC had earlier cancelled 21 wireless telephony licences of SSTL which resulted in the company writing off investments worth $700 million till now.

FROM RUSSIA, WITH DISINTEREST
JPMorgan report on Sistema

• No more investments in India
• Plans to reduce exposure in SSTL
• No plans to buy Aircel India
• Transferring $1.5 bn of SSTL’s debt to holding company
• SSTL debt to be reduced by a third
• Exiting India is good for Sistema’s balance sheet
• Planning special dividend, buyback of shares

The latest Sistema position has got thumbs-up from analysts, who have even suggested the company should exit India. “Exiting India could significantly improve Sistema’s long-term cash generation. Its fortress balance sheet appears sufficient to repay the current holding debt of $1.5 billion and handle potential debt obligations from India,” JPMorgan Cazenov analyst Alexei Gogolev wrote after meeting the management of Sistema in Moscow after its quarterly results on November 22. Sistema holds 57 per cent stake in SSTL.

An email sent to Sistema’s headquarters in Moscow did not elicit any response.

The Sistema management also dismissed the speculations that it would buy the operations of Aircel, even though it had evinced such an interest earlier.

“Sistema has begun transferring some of the $1.5-billion loans held in the Indian subsidiary on to the holding level and hopes outstanding debt of SSTL will be reduced by about a third by the end of 2012,” JPMorgan analysts said in a report.

Analysts said if its curative petition was upheld, Sistema would remain in India, but would see a different business model, with significantly less cash compared to previous periods.

Sistema is not the first company to either close or scale down its India operations after the SC’s February judgment. Soon after the Court verdict, S-Tel, a company owned by billionaire investor C Sivasankaran and Bahrain Telecom, shut operations. Similarly, Norwegian company Telenor also exited many circles after the recent auctions, curtailing its pan-Indian operations. Among Indian companies, Videocon scaled down its operations to just six circles that it won in the recent auction, from 21 licences it had won earlier. Gulf-based Etisalat also lost money in its Indian joint venture, Etisalat DB, which never took off in India.

Sistema had decided not to submit an application to participate in the 2G spectrum auction held early this month, citing unjustifiably high reserve price of $3.3 billion for 5 MHz of SSTL’s CDMA spectrum recommended by the Telecom Regulatory Authority of India. Sistema now hopes SC would reverse its February ruling.