November 29, 2012 / 5:30 AM / 5 years ago

UPDATE 3-Kazakhstan's Kcell IPO to raise up to $650 mln

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* Price range set at between $10.50 and $13 per GDR

* Bookbuilding, roadshow to be completed on Dec. 11

* TeliaSonera to pay down debt, retain long-term control

By Robin Paxton

ALMATY, Nov 29 (Reuters) - Kcell, Kazakhstan's largest mobile phone operator, expects its stock market debut to raise up to $650 million for Nordic parent TeliaSonera, which is floating a 25 percent stake in the shadow of a bumpy listing by Russian rival MegaFon.

The price range of $10.50-$13.00 per global depositary receipt for next month's initial public offering (IPO) in London and Almaty indicates a lower value for Kcell than the price TeliaSonera paid for a 49 percent stake earlier this year.

Organisers of the listing, who embarked on a roadshow on Thursday, hope to entice investors with generous dividend payouts and prospective growth in smartphone and broadband use in Kazakhstan, the largest economy in ex-Soviet Central Asia.

"There's a lot of room for growth in Kazakhstan before it catches up with markets like Russia," David de Lanoy Meijer, managing director and regional head of telecoms at Credit Suisse, one of the bookrunners for the IPO, said by telephone.

However Stanislav Yudin, analyst with Moscow-based brokerage Aton, said investor appetite might be lacking after MegaFon's IPO this week, even though he viewed Kcell's offer price as relatively cheap for a good asset with little local competition.

"After the MegaFon IPO hoovered up cash from the market, any half-a-billion-dollar IPO of a mid-sized company is bound to become more problematic," he said.

Europe has seen a pickup in IPOs since the start of September, but those working on deals say investors remain choosy about which to back and are not willing to pay over the odds amid choppy markets and an uncertain economic outlook.

MegaFon shares priced at the bottom end of its IPO range and fell by nearly 3 percent on their debut.

Kcell said the indicated price range for its shares would raise between $525 million and $650 million, and value the company at between $2.1 billion and $2.6 billion. Booking investor orders is expected to be completed on Dec. 11.

Even at the high end of the range, Kcell's market capitalisation would be less than a quarter of the $11.1 billion valuation of MegaFon , Russia's No. 2 mobile operator, when it floated on Wednesday.

Telia owns 25 percent of MegaFon after selling shares in the IPO, which will net it around $1.3 billion. Company spokesman Salomon Bekele said Telia planned to pay down debt with proceeds from the Kcell and MegaFon sales.

With the company also looking to sell its Spanish unit, Yoigo, Telia shareholders are hoping the flood of cash will lead to extra dividends, such as the 10 billion crown payout in 2008.

But in a recent Reuters interview, Telia President and CEO Lars Nyberg was cautious about extra payouts.

In a statement on Thursday, Nyberg said Telia would retain "long-term strategic control" of Kcell. After the IPO, its stake in Kcell will drop to 61.9 percent.

Sonera Holding BV, the Telia subsidiary which is selling the stake, will retain an option that will allow it to buy back up to 10 percent of the GDRs on offer.

Growing Kazakh Market

Kcell, whose distinctive purple logo appears on billboards and store fronts in Kazakhstan's main cities, has 12.7 million subscribers, giving it a market share of nearly 48 percent in an oil-rich country five times the size of France.

It generated revenues of $1.19 billion and net profit of $446 million last year. Its margin on earnings before interest, tax, depreciation and amortisation (EBITDA) was 59.2 percent.

Telia agreed to the Kcell float as part of its acquisition, completed this year, of a 49 percent stake from state-run fixed line operator Kazakhtelecom. Telia paid $1.52 billion for this stake, implying a valuation of $3.1 billion for Kcell.

Asked about the comparatively low IPO valuation, Bekele, the Telia spokesman, said: "We see the long-term benefit of this outweighing the short-term valuation."

In a written response to questions, Kcell Chief Executive Veysel Aral said the company's relationship with Telia, as well as its cash flow and dividend policy, set it apart from MegaFon.

Kcell has pledged to pay out a minimum 70 percent of net income in dividends, and also cites the relatively low level of smartphone penetration in Kazakhstan - less than 10 percent, compared with nearly 20 percent in Russia - as a selling point.

Ratings agency Fitch raised Kazakhstan's credit profile to BBB+ on Nov. 20, putting it firmly into investment grade territory and a notch above Russia.

As well as Credit Suisse, UBS and Kazakh investment bank Visor Capital have been appointed joint global coordinators and bookrunners for the IPO. Renaissance Capital is joint bookrunner and Halyk Finance co-manager of the offer.

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