Goldman Sachs pulls out of planned $2 bn IPO of Russia’s MegaFon, citing corporate governance issues

MegaFon confirms plans to move ahead with IPO after key shareholder announces plans for merger of assets

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Goldman Sachs has quit its role as lead bank in the London-based IPO of MegaFon, Russia’s second-biggest mobile phone operator, citing concerns over corporate governance, according to media reports.

Goldman Sachs made the decision to withdraw after MegaFon’s controlling shareholder Alisher Usmanov, Russia’s richest man, told Reuters in an interview in September that he aims to merge his assets, including steel companies and the Arsenal soccer team, into a single umbrella company, the Financial Times reports.

Usmanov told the news agency he would hold ownership of the assets jointly with partners Farhad Moshiri, who is also a shareholder in Arsenal, and Vladimir Skoch, the father of another business partner of Usmanov.

The move would have left Goldman Sachs coordinating an IPO when it was unsure of the status of the controlling shareholder.

MegaFon said on October 9 that it intends to push ahead with the IPO but gave few further details on the size or date of the offering.

The statement didn’t refer to Goldman Sachs but mentioned Morgan Stanley and Sberbank CIB as joint coordinators of the sale and Citi, Credit Suisse and VTB as joint bookrunners.

The IPO, which MegaFon aims to launch by the end of this year, could raise around $2 bn, according to two unnamed sources cited by Reuters.

The sum, down from an earlier estimate, would value MegaFon at about $13 bn. The size of the stake on offer has also fallen to 15 percent from 20 percent, Reuters reports, citing another unidentified source.

‘This is the right time for our IPO, which will support a new stage in MegaFon’s development,’ CEO Ivan Tavrin says in a press statement.

‘We have grown rapidly in recent years, increasing our market share at the expense of our peers on the back of historically high network investment and a strong brand built on excellent product innovation and customer service. We are now positioned to exploit the further growth potential of Russia’s mobile market as it transitions from voice to high-value data and services.’

The IPO would include existing ordinary shares held by Sonera Holding, a subsidiary of TeliaSonera, and by MegaFon Investments, a subsidiary of MegaFon, the company says.

MegaFon, which has some 62 mn subscribers in Russia for a market share of about 27 percent, says it intends to use the proceeds of the IPO to continue development and expansion of its network and to repay or refinance existing debt.