Publication: Monitor Volume: 4 Issue: 80

Rules for selecting the firm to assess the initial value of the second privatization tender for Russia’s Svyazinvest telecommunications holding company were recently announced. These show that the government is taking steps to avoid a repeat of the scandal that followed Svyazinvest’s first privatization tender last summer. They also suggest that the final form of the second privatization is yet to be determined.

According to Interfax-AFI, the winner of the assessment tender (likely to be an investment bank or international accounting or consulting firm) will receive no more than 2.135 million rubles ($356,000) when the assessment is completed. This contrasts with the $650,000 fee Dresdner Kleinwort Benson received for assessing the initial value of the Rosneft oil company last month. It also suggests that the State Property Ministry wants to minimize the cost of the assessment. The firm selected to perform the tender will also be prohibited from participating in any way in the subsequent privatization tender. This suggests that the Ministry may also wish to avoid charges of favoritism in selecting the assessing firm. (Interfax-AFI, April 13, 15)

The proposals submitted by participants in the assessment tender must reflect a number of different scenarios for Svyazinvest’s sale. Under the first scenario, 25 percent minus two shares of Svyazinvest equity is to be sold as an investment tender, in which the winner will: (1) submit a bid that exceeds the initial assessed value by at least a factor of three, and (2) make significant post-privatization investments in Svyazinvest. Other scenarios do not envision an investment tender, and differ primarily by whether the shares will be sold to a single or multiple investors. The proposals must also describe how the assessment would change if the equity tender would be reduced to 24 percent minus one share.

Bids in the assessment tender must be submitted by May 12. An agreement is to be concluded with the winner by May 15. The winner must submit the final version of the assessment by June 2, and the privatization tender is to be held this fall.