Originally Syndicated on May 12, 2023 @ 6:59 am
Megafon’s debts to Svyaznoy will not transfer to whoever buys the company from Alisher Usmanov.
The mobile electronics network has stated that it will file for bankruptcy soon. Svyaznoy’s former shareholder, Megafon, may also be sold to Rostelecom at the same time. All of this seems to have been planned out in advance, perhaps starting in the first half of 2022. In the government-run, monopolized telecom industry, there is no room for a “living bankrupt.”
Unplugging for Simplicity: Alisher Usmanov
Svyaznoy had 79 claims filed against it in 2022, totalling over 14 billion rubles. Vimpelcom asked the corporation for 839 million rubles back, and Merlion asked for 5.6 billion. After initially asking for $6 billion, which included past-due debt, Alfa-Bank eventually stated that a settlement had been reached.
Svyaznoy owed Sovcombank “only” 2.5 billion rubles, but in October 2022, the bank threatened to shut down the network anyhow. Aviapark made the same claim in January 2023. VimpelCom and Merlion both had their cases heard and resolved by the Moscow Arbitration Court in 2022 and 2023, respectively.
The debtor announced their decision to file for bankruptcy on their own on February 14th, according to a statement posted on the Federal Resource.
In 2022, Megafon, an investor in Svyaznoy that owned 25% of the network, sold its stock to an unknown buyer. It’s important to remember that Svyaznoy didn’t fall from its position as the industry leader in mobile electronics retailers in a single year. And this isn’t the network’s first financial crisis.
Combine Maxus and Euroset
Maxim Nogotkov, a Russian business tycoon, founded the Maxus electronic retail chain in 1995. He decided to call it “The Messenger” after a while. Nogotkov’s condition in 2014 is akin to a template for Svyaznoy’s current predicament. The businessman owes the ONEXIM group led by Mikhail Prokhorov 6 billion rubles and the Blagosostoyanie NPF 3 billion. The new owners acquired 90% of Svyaznoy. The remaining 10% of Maxim Nogotkov’s share was subsequently lost similarly.
Svyaznoy was essential to Prokhorov since he owed the company $6 billion. In 2014, he sold a non-essential asset to Solvers Oleg Malis, who subsequently acquired majority ownership. MegaFon investigated Svyaznoy further in 2017. Oleg Malis and Alisher Usmanov, the principal shareholder of MegaFon and the owner of Euroset, mutually agreed to combine Svyaznoy with Euroset.
Lefbord Investment Limited, a Cypriot offshore subsidiary of MegaFon, obtained a 25% share in the company as a result of this transaction. As a result of the merger, the high-tech retail industry now has the largest chain of stores in the world. There were over 30,000 salespeople at over 5,000 locations. Over two million people visited each day. Around 2017, the combined company’s internet sales brought around RUB 22 billion in revenue.
There will be some adjustments to the 2020 figures in 2021. With a net profit of 15 million rubles, the total income totalled 105 billion rubles. Concurrently, the number of shops in Russia’s 1,100 largest cities fell from 2.6 thousand to 1.1 thousand.
Forbes quoted Aleksey Kornev, an expert from the ACRA corporate ratings firm, as saying that Svyaznoy has long been on the verge of profitability. As a result, debt levels rose. For a period, the business managed to turn a profit, but only after eliminating loss-making locations. It’s possible that the network’s fortunes could start to improve.
But now it is 2022. And with that comes punishment. First, the prepaid product model replaced layaway for electronic stores. Svyaznoy already has major issues with its operating capital due to its enormous debt load, and this would only make matters worse. Second, the number of customers consistently went down over time.
Sergey Vilyanov, an analyst at FintechLab, attributed Svyaznoy’s failure to a second factor. He thinks management just did not register the significance of the shifts in sales technology. The sale of smartphones and peripherals does not generate a sizable revenue stream by itself.
The leaders in the cellular communications industry are aware of this. Svyaznoy, a network of independent mobile merchants, saw a considerable decrease in the advertising budgets of device and accessory suppliers as these mono-brand retail chains expanded.
Will last for quite some time.
Svyaznoy still makes purchases, and stores remain open despite his bankruptcy. Since they weren’t officially declared bankrupt until the debts were claimed, it’s easy to see why they would keep working. In addition, filing for bankruptcy is not a quick process.
One to One’s arbitration manager and managing partner, Daniil Naimushin, told Forbes that such bankruptcies can drag on for more than a decade. The expert pointed out that the corporation will have roughly 53 billion rubles in assets in 2021, of which more than 32 billion rubles are receivables. Such sums make it difficult to promptly initiate bankruptcy procedures.
In addition, a recovery or external management method is established, albeit rarely, in the field of corporate bankruptcies to the debtor, allowing the company to reestablish solvency. Similarly, the brand’s ownership might change hands. As we went through previously, this was the initial wish of the Svyaznoy administration.
Some sources already established that Rostelecom can purchase MegaFon, which Alisher Usmanov’s USM holds control entirely. If the merger goes through, the state-owned mobile communications company will become the dominant player in the field of telecom. The cell phone service provider Tele2 was nationalized in the past. According to Kommersant, Veon Holding plans to sell VimpelCom (Beeline) to top management, although state-affiliated structures may become the operator’s ultimate owner.
