Speculations suggest that MegaFon IPO is oversubscribed

The 2nd largest mobile operator of Russia, OAO MegaFon has reportedly received more than enough orders on the last day of the sale and will be able to fill the initial public offering. The order book is being covered at a price of $20 per share and hence, the IPO is expected to raise around $1.7 billion. The details are yet not made public and the insider sources to this report have asked not to be identified. The official spokesperson of MegaFon, however, has declined to make any comment. The official trading of the shares is all set to begin on 28th November in both Moscow and London.

Incidentally, last October, MegaFon postponed an IPO marketing campaign raising speculation among investors that the demand may actually have trailed expectations. According to Konstantin Chernyshev, the analyst of UralSib Capital, investors will be interested in MegaFon as it offers an alternative when it comes to the telecommunications industry of Russia. He also added that MegaFon’s placement will pave the way for extra exposure of the telecom sector in the country and reasonable top line growth, attractive dividends and stable cash flows are only expected to follow. Incidentally, Telefonica Deutschland Holding AG, another telecom operator raised more than $1.95 billion in the largest IPO in Europe in 2012.

MegaFon have declared to pay either 70% of free cash flows or 50% of the generated profits as dividends. On the other hand, MTS, the largest telecom operator in Russia has decided to pay 50% of its profit in dividends. It is expected that MTS is going to increase the payout further though. Analysts believe that MegaFon’s price of $20 per share is almost equivalent to that of MTS and it hardly provides a good discounted deal if compared to that of MTS.

The sale from MegaFon is part of the agreement that Alisher Usmanov, the controller of MegaFon made with Stockholm-based TeliaSonera AB. It has been decided that Usmanov will continue to have 50% holding on the company and TeliaSonera is expected to retain 25% of the shares. TeliaSonera and MegaFon will sell 15% of the total stake. TeliaSonera has already announced that Lars Nyberg, the CEO of the company will buy shares worth $2 million. The IPO is the biggest in Russia since United Co. Rusal held a similar sale in 2010.