In September this year, tower research specialists TowerXchange remarked that VEON's deal to sell its portfolio of 15,400 Russian towers to Service-Telecom marked "the first major sale and leaseback transaction in Russia's vast tower market."

Almost two months later, an even bigger deal involving Russian cell towers has just been announced: MegaFon, the number two mobile operator in Russia, agreed a deal with the Kismet Capital Group to set up an independent tower company with more than 22,000 towers. Kismet is a private equity investment company that is led by its founder Ivan Tavrin.

The new towerco is to be created by combining the assets of MegaFon's First Tower Company – valued at 94.2 billion rubles (US$1.35 billion) and consisting of about 17,000 towers – with the more than 5,000 towers owned by Russian tower firm Vertical, which was established in 2013 and is now controlled by Kismet.

Figure 1: Loud and clear: MegaFon, Russia's second-largest operator, is leading the second of two major tower deals announced in 2021.
(Source: Aleksey Zotov / Alamy Stock Photo)

The deal is expected to close by the end of 2021, after which MegaFon will lease back the towers.

Joining the club

MegaFon is to take a 25% stake in the combined entity and two seats on the board of directors.

As majority shareholder, Kismet will provide the remaining five representatives on the board of directors and will be responsible for the operational management of the business. Vertical's founder Georgy Chumburidze will also receive a minority stake in the combined business.

According to Cleary Gottlieb, which represented MegaFon, the partners are also "contemplating a possibility of the combined company going public and expanding its presence to foreign countries."

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Khachatur Pombukhchan, CEO of MegaFon, indicated that the operator has been closely watching what some of its industry peers have been doing with their tower assets in the recent period.

"Together with key global companies in the industry, we recognize that our own passive infrastructure is not a competitive advantage of a cellular operator," Pombukhchan said.

He added that telcos should focus on their core business of communications and leave tower construction and management to the professionals.

MegaFon established First Tower Company in 2017 and indicated at the time that it would be seeking to sell a stake to a strategic buyer or financial investor.

It was reported in November 2019 that MegaFon was in discussions with several companies about a potential sale including Russian Towers, Vertical and Service-Telecom, along with foreign players.

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— Anne Morris, contributing editor, special to Light Reading