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Mobile TeleSystems Nearly Dropped by Oaktree Capital

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Oaktree Capital’s holdings in Mobile TeleSystems

Oaktree Capital massively reduced its holdings in Mobile TeleSystems OJSC (MBT) in 4Q14. Representing a massive 98% decrease, Oaktree’s stake in the company fell from 1,357,248 shares in 3Q14 to 33,500 shares.

Mobile TeleSystems makes up 4.53% of the VanEck Vectors Russia ETF (RSX) and 3.35% of the iShares MSCI Russia Capped ETF (ERUS).

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Mobile TeleSystems overview

Mobile TeleSystems is a leading telecom group in Russia and in the Commonwealth of Independent States (CIS). The company offers fixed and mobile voice, pay-TV, broadband, and entertainment and content services in these regions. As of September 30, 2014, the company, along with its subsidiaries, serviced more than 100 million mobile subscribers in Ukraine, Russia, Turkmenistan, Armenia, and Belarus. As of September 30, 2014, the fixed business of the group catered to more than 7 million residential subscribers in more than 12.4 million households.

Total group revenue grows despite macroeconomic uncertainty

In 2014, the company reported total group revenue of 410.8 billion Russian rubles (~$7.21 billion), a 3.1% increase from 398.4 billion Russian rubles (~$7.01 billion) during 2013. The revenue growth was due to an increase in data traffic and voice revenues and a growth of the subscriber base in Russia.

The performance of group revenues was offset by a fall in the subscriber base and revenues in Ukraine. This was due to discontinuation of the company’s operations in Crimea, prevailing hostilities in Eastern Ukraine, and continuing macroeconomic weakness.

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Value creation and efficiency

The company partnered with VimpelCom (VIP) in the roll out of LTE (long-term evolution) networks in 36 regions.

Dividends amounting to a record 51.2 billion Russian rubles (~$0.9 billion) were paid out during 2014. Adjusted operating income before depreciation and amortization, or OIBDA, grew on a year-over-year basis despite macroeconomic volatility, currency, and cost pressures. Interest expense was reduced by 771 million Russian rubles (~$13.56 million).

Mobile TeleSystems is the leading retail network in Russia with the highest penetration of smartphones in the market. It has improved its market share in the pay-TV and broadband markets in Moscow. The company offers a relatively high dividend yield of 11.4%. In comparison, Verizon Communications (VZ) offers a yield of 4.4% and AT&T (T), 5.6%.

Predominantly ruble-denominated debt mitigates foreign exchange risk

As the figures above show, about 75% of the company’s debt is denominated in the Russian ruble. This mitigates the risks associated with the volatility of foreign exchange rates somewhat. It also enhances the strength of the company’s balance sheet.

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