Svyazinvest, the largest telecommunications operator in Russia, met investors in Hong Kong late last month to gauge interest in a potential share sale here by way of Hong Kong depositary receipts, sources said. The firm, which is 75 per cent owned by the government, launched the non-deal roadshow in Hong Kong in the last week of October and told investors the city would be one of the markets that could help them raise fresh funds in the future, said an investor who was invited to the meeting. Singapore, London and New York were other possible venues. 'They didn't give us too much financial information or the profit preview about the company as the meeting was only a background briefing,' the investor said. 'From what I understand, some cash-rich funds have shown interest in buying shares in Russian companies given its huge growth potential, but would like to wait a bit due to the current financial slowdown.' Svyazinvest declined to comment. The company controls seven separate units after an internal restructuring. Each of these individually runs three core businesses - broadband access, mobile and fixed-line - across separate regions in Russia. Its fixed-line network accounts for more than 90 per cent of Russia's total installed capacity, according to the company's website. A source said Svyazinvest, before selling shares, would complete another round of restructuring that would see it consolidate all of the units into one holding firm. That company would then either sell shares in Russia and another market or do a sole listing overseas. The time it takes to restructure is likely to forestall any equity sale until 2010. Russia's telephone industry had shown strong growth, analysts said. 'Mobile penetration has risen faster than almost any other market. Usually, after it hits 60 per cent it begins to slow, but funnily enough Russia is sort of the exception because it's still going up,' said Cyrus Mewawalla, co-founder of London independent analyst firm Cyke Partners. 'For Russians, the first affordable luxury is a mobile phone and because most of the companies are government-owned, they are dishing them out at reasonable prices.' Barriers to foreign entry in Russia's market also helped, he added. Some market observers in Hong Kong said an overseas telecommunications company might have trouble attracting interest since such a group usually has a regional footprint. Others felt that a growth story may sell but Hong Kong was not necessarily the best place for it. 'It is partially true that they are a regional story but they do also fall under the whole utilities/infrastructure category,' said one banker. 'Chunghwa Telecom was listed in the US, for example, and that had a high yield following. So that huge cash-flow story is transferable from region to region if the yield is there, but the US comes more to mind than Hong Kong for telecoms and technology companies.' New York's Nasdaq has traditionally seen a high concentration of technology-savvy investors. HDRs were approved for sale in Hong Kong starting in July and are similar to American depositary receipts. Depositary receipts, which represent the underlying shares of a company, are used by a foreign firm to raise equity in an overseas market. Dialling for cash Firm may raise funds in Hong Kong by issuing depositary receipts Svyazinvest, 75 per cent owned by the government, accounts for the bulk of Russia's installed fixed-line capacity at: 90%
