UPDATE 2-Ruling hints at phone firm MTS return to Uzbekistan

Fri Nov 9, 2012 10:31am EST

* Uzbek court unfreezes Russia mobile phone firm's assets

* Court orders to pay $600 mln in fines, upholds sentence on managers

* MTS CEO sees chance to resolve differences

* Analysts praise positive development, but fines too high

MOSCOW, Nov 9 (Reuters) - An Uzbek court has overturned a ruling confiscating the local assets of Russian mobile phone operator MTS, offering hope it could yet restart operations valued at $1 billion in central Asia's most populous country.

In a ruling handed down on Thursday, the court also ordered MTS to pay around $600 million in fines within eight months and ruled to bring in the operator as a civil defendant in a criminal case against its four local employees.

But it overturned a previous judgement ordering the confiscation of MTS assets. Previous fines had also totalled $900 million.

MTS had appealed against the nationalisation of its Uzbek assets after its operating licence was withdrawn earlier this year and a 2.5-year "corrective" labour sentence imposed on its managers.

MTS chief executive Andrei Dubovskov said in a statement that the ruling cleared the way for moves to find a solution that settled the previous differences and was "mutually beneficial to all parties".

MTS, which had taken a $1.1 billion write-off in August in connection with the Uzbek licence withdrawal, said it had yet to decide on its next moves in Uzbekistan. But business daily Vedomosti, which cited a source at MTS parent company Sistema , said MTS was hoping the fines would be reduced.

The company has said it is just the latest foreign player to be on the end of a "classic shakedown" by officials in the gas-rich republic, pointing to the withdrawal of London-listed Oxus Gold, U.S. firm Newmont Mining Corp and Russia's Wimm-Bill-Dann, now part of PepsiCo.

Swedish telecoms operator TeliaSonera last month started a legal review of its 2007 purchase of a licence in Uzbekistan after allegations of wrongdoing related to that deal.

The most recent accusations, aired in a Swedish TV programme, are that Telia bought its Uzbek 3G licence from a firm reported to have close ties with the daughter of Uzbek president Islam Karimov.

FINES TOO HIGH

MTS' Uzdunrobita unit accounted for 3.6 percent of MTS' total sales and 4.5 percent of its operating income before depreciation and amortisation last year. As recently as the middle of this year it was the market leader with around 9 million clients.

Analysts said that the chances of MTS returning to the market were still low.

"It is premature to assume that MTS will restore its operations in the country, as the $600 million fine seems too high, given that it is almost half of the value of this asset," said Anna Lepetukhina, an analyst at Sberbank-CIB.

MTS spokeswoman Yelena Kokhanovskaya said a reserve it had made previously as part of the $1.1 billion write-off would cover potential fines.

Uralsib analysts said even if MTS managed to return to Uzbekistan, it would still be unlikely to fully restore its market position.

According to Russian market research firm AC&M, Vimpelcom - MTS's main rival in CIS markets - increased its Uzbek subscriber base to 9.2 million by the end of September from 7 million in June.

Uzbek officials could not be reached for comment.

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