Crossroads Asia

Telia’s Exit Consolidates State Ownership in Kazakhstan Telecoms Sector

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Crossroads Asia

Telia’s Exit Consolidates State Ownership in Kazakhstan Telecoms Sector

Hit by scandals across Central Asia, Telia to sell its stake in Kcell, the largest mobile operator, to state-owned Kazakhtelecom.

Telia’s Exit Consolidates State Ownership in Kazakhstan Telecoms Sector
Credit: Pixabay

In late January, state-owned telecoms operator Kazakhtelecom placed a bid to buy a controlling stake in Kcell, owned by Telia, a scandal-ridden Nordic company, in a move that will further concentrate the telecoms market into the hands of the government.

Kcell, Kazakhstan’s largest mobile operator, is part of the constellation of Telia subsidiaries in the Eurasian market, alongside Ucell in Uzbekistan, Tcell in Tajikistan, and Geocell in Georgia. In 2016, Telia was hit by the aftershock of a corruption earthquake in Uzbekistan’s telecoms market. In an effort to clean up its reputation, the Swedish-Finnish operator rebranded from TeliaSonera to Telia Company, slightly retouched the logo and promised its investors to divest from the Eurasian market within a few years. In September 2016, the company said it expected to pay fines of up to $1.45 million in court settlements in the United States and the Netherlands. One year later, it agreed to pay nearly $1 billion in penalties to settle its corruption scandal in Uzbekistan.

Telia directly owns a 24 percent stake in Kcell. Fintur, a holding company formed of Telia (58.5 percent) and Turkey’s Turkcell (41.5 percent), owns 51 percent of Kcell. Kazakhtelecom has made an offer for Telia and Fintur’s stakes, which will give the state-owned operator a 75 percent share in Kcell. According to sources close to the deal, the offer could vary between $800 million and $1.2 billion. Other sources, however, said that the price could be set as low as $600 million.

In mid-January, Kcell announced a three-year 4.95 billion tenge ($15 million) bond, placed on the Kazakhstan Stock Exchange to raise cash for its restructuring. Later in January, Russia’s investment company Freedom Finance increased its stake in Kcell to 10.5 percent.

Now, Kazakhtelecom’s bid is under review by the government’s antitrust authority, but few doubt the successful takeover of Telia’s share.

Samruk-Kazyna, Kazakhstan’s sovereign wealth fund, owns a 51 percent stake in Kazakhtelecom. In October 2017, Dauren Tasmagambetov, head of privatization at Samruk-Kazyna, said that the telecoms operator could be among the first state-owned companies to be listed in 2018 as part of a new privatization campaign.

“For Kazakhtelecom, we know the situation better [compared to other state-owned companies]. At this point we see they’re more ready than others,” Tasmagambetov told Reuters.

Along with its mobile operations, Telia also decided to let go of its interests in Kazakhstan’s telecoms infrastructure. Once cleared by the regulator, Telia will also sell its minority stake in fiber network and services company Kaztranscom to Dubai-based Amun Services. Telia had acquired the stake in 2012 for $35 million.

When Telia merged with Sonera in 2002, it acquired the latter’s interests in Eurasia. In the following years, TeliaSonera engaged actively in Kazakhstan’s market, where mobile penetration stood at just 10 percent in 2003. While mobile penetration boomed – in 2017 the International Telecommunication Union put it at 187 percent – TeliaSonera invested heavily in the country. According to a 2013 report, it paid around $205 million for telecom assets to Aigul Nuriyeva and Raushan Sagdiyeva, allegedly close to ex-Prime Minister Karim Massimov. In 2017, Nuriyeva was 12th in Forbes’ ranking of Kazakhstan’s richest people. She had held interests in Altel and Kaztranscom and still owns the service company Midas Telecom.

While Telia’s divestment is roughly in line with the company’s plans to exit the Eurasian market, the deal would strengthen Kazakhtelecom’s position in Kazakhstan’s telecoms market. Directly and indirectly, through its participation in Altel, Kcell, and Tele2, the state-owned company will control approximately two-thirds of the sector.