AFK Sistema will buy 25% in Etalon and become the largest shareholder

AFK Sistema is preparing for a major deal - the purchase of a stake in one of the largest construction companies in Russia, Etalon, from the family of founder Vyacheslav Zarenkov, Vedomosti writes. After this, it will become the largest shareholder of Etalon. Before the deal, Sistema sold 51% of its own development subsidiary JSC Leader-invest to Etalon.

Read more. Etalon Group signed a binding agreement to purchase a 51% stake in Leader-invest for 15.2 billion rubles. The transaction was approved by the antimonopoly authorities and will be financed by a loan from Sberbank. Etalon intends to complete the integration of Leader-invest in the third quarter of 2019.

Leader-invest's portfolio is about 3 million sq. m. m. The company specializes in residential complexes on the site of former automatic telephone exchanges, which Sistema inherited from MGTS (the Happiness houses), and integrated development (projects including Nagatino i-Land and ZIL-Yug). As of October 1, 2018, its portfolio was estimated at 66.6 billion rubles.

In 2017, Etalon ranked fourth in housing commissioning in Russia after the PIK group, LSR and Setl Group, Vedomosti writes. In terms of development volume, the company now ranks 8th in Moscow and 5th in St. Petersburg, with a total portfolio of about 4.5 million sq. m. m. Shareholders are the family of the founder Vyacheslav Zarenkov (30.7%), another 5.7% from the Baring Vostok Capital Partners fund. More than 60% are traded as ADRs on the London Stock Exchange.

The market accepted the deal well: Sistema’s ordinary shares rose by 1.9% on the Moscow Exchange by 10.40 Moscow time, with a stable index.

Context. The sale of the development subsidiary is preparation for Sistema’s purchase of a stake in Etalon itself, Vedomosti writes. In the near future, Sistema may buy up to 25% of Etalon shares from the Zarenkov family at a significant premium to the market - the price of the package could be up to $230 million.

With Etalon, Sistema JSFC receives a high-quality real estate portfolio in Russian regions and takes its development business to a new level. Moreover, she doesn’t have to worry about pitfalls—Etalon is considered one of the most transparent companies in the industry.

The family of Vyacheslav Zarenkov will remain only a minority shareholder. The founder himself, who created Etalon more than 30 years ago, intends to focus on charitable activities and the construction of churches.

Sergey Smirnov