Russia's Megafon cuts stake in to form digital venture

The logo of Russian mobile operator Megafon is seen on a board at the St. Petersburg International Economic Forum 2017 (SPIEF 2017) in St. Petersburg, Russia, June 1, 2017. REUTERS/Sergei Karpukhin

MOSCOW (Reuters) - Russia's No.2 mobile phone operator Megafon MFON.MM said on Tuesday it would set up a joint venture with Gazprombank GZPRI.MM and state defense conglomerate Rostec to develop digital projects.

The deal will see Megafon contribute a part of its stake in internet company Mail.Ru Group MAILRq.L, representing an economic interest of 5.23 percent. It will then sell 55 pct of this new company raising $247.5 million.

Megafon Executive Director Gevork Vermishyan told Reuters the company planned to use the proceeds to reduce debt and fund investments and would not pay any special dividends to shareholders.

Megafon currently owns 100 percent of the newly-created entity, MFT. It will retain a 45 percent stake after selling 35 percent to Gazprombank, 11 percent to Rostec, and 9 percent to Megafon’s biggest shareholder USM.

“Jointly with its partners, Megafon plans to implement a number of digital projects, including creating software products to digitalize the operations of major companies and enterprises, and developing blockchain-based solutions,” it said.

Gazprombank bought a 19 percent stake in Megafon for around $1 billion from Nordic telecom operator Telia TELIA.ST last October.

Megafon, which bought a 12.5 percent economic stake in from USM in February 2017, said it would retain a 10 percent interest in the internet group.

Reporting by Anastasia Teterevleva; writing by Maria Kiselyova, editing by Louise Heavens