UPDATE 2-Russia's MTS exits Ukrainian mobile market with $734 mln disposal

(Adds detail, analyst comments, quotes, background)

MOSCOW, Nov 25 (Reuters) - Russia’s biggest mobile phone operator MTS has agreed to sell its Ukrainian business to Azerbaijan’s Bakcell for what analysts said was a cut-price $734 million.

The departure of MTS from the Ukrainian market comes at a low point in Moscow-Kiev bilateral relations and follows a wider trend among Russian companies in quitting foreign markets to focus on domestic investments.

MTS acknowledged the “general instability” and “economic deterioration” of Ukraine in the company’s 2018 consolidated financial statements.

In a deal with Britain’s Vodafone MTS rebranded its Ukrainian unit as Vodafone Ukraine in 2015, shortly after the separatist conflict began in the Donbass region, in a move widely viewed as a way for the company to distance itself from its Russian shareholders.

The rebranding was part of a strategic partnership agreement with the Vodafone, which has no economic interest in MTS Ukraine.

MTS will sell its Vodafone Ukraine operation to Bakcell and will pay a special dividend as a result, it said on Monday, lifting its Moscow-listed shares more than 2% by 1214 GMT.

The board has approved the special dividend of 13.25 roubles per ordinary share, or 26.5 billion roubles ($415.1 million) in total, MTS said.

Vodafone Ukraine is the second-largest mobile operator in the country behind VEON-controlled Kyivstar, though MTS’s Russian operations account for more than 90% of the group’s revenue.

“Given the small share of our Ukrainian operations in our overall business, we reaffirm our commitment to fulfilling our updated dividend policy and continuing to generate attractive returns for our shareholders,” said MTS Chief Executive Alexey Kornya said.

Aton Research analysts said the deal implied the unit’s enterprise value at 3.9 times core profit, reflecting the high risk of operating a business in Ukraine, adding that the special dividend of more than 4% would be viewed positively by investors.

Analysts at BCS Global Markets said the valuation multiple was lower than expected, suggesting the sale was at a discount.

The deal was given approval by Ukraine’s anti-monopoly committee in October and MTS said the transfer of shares to Bakcell-controlled Telco solutions and Investments LLC is expected to complete shortly.

NESQOL Holding, Bakcell’s parent company, said the deal will be financed mainly through resources from international financial structures.

The change of ownership will not affect operations of Vodafone Ukraine, NESQOL said. ($1 = 63.8345 roubles) (Reporting by Maria Kiselyova, Alexander Marrow and Nadezhda Tsydenova; Writing by Alexander Marrow; Editing by Aditya Soni and David Goodman)