Russia's Sistema to optimize asset portfolio

By Maria Kiselyova and Anastasia Teterevleva

MOSCOW (Reuters) - Russia's leading diversified company AFK Sistema (SSAq.L: Quote, Profile, Research, Stock Buzz) may sell assets which do not meet its targets for return on invested capital, Chief Executive Officer Leonid Melamed told Reuters.

"If a business is inefficient and we have no instruments to raise its efficiency, we will sell it," Leonid Melamed said in an interview at the Reuters Russia Investment Summit on Wednesday.

"If we do not see a business model which would allow us to get the ROIC (return on invested capital) and IRR (internal rate of return) that we need and if we can't find a partner who would help us develop a business, we have to sell it," Melamed said at the event, held at the Reuters office in Moscow.

Melamed, a former president of Sistema-controlled mobile phone operator MTS (MBT.N: Quote, Profile, Research, Stock Buzz), was appointed CEO of Sistema in May. He declined to specify which businesses the company might sell.

Melamed said Sistema was not particularly hurt by the global credit crunch which has increased borrowing costs, though the company was adjusting its tactics to deal with the change in market conditions.

"To lower debt burden would be preferable, and from this point of view optimization of our portfolio is one of the instruments to achieve that," he said.

"We are optimizing our portfolio, and sale, partnerships, revision of our organic growth plans as well as conservative approach to mergers and acquisitions is what we are doing."

Melamed said Sistema had no immediate plans to invest aggressively within or beyond the markets of Commonwealth of Independent States (CIS), as organic growth of its existing subsidiaries also requires "very significant sums of money."

One of the company's biggest projects is the creation of a pan-Indian telecom operator. "This is an ambitious project but obviously, where else to develop telecoms if not in India and South-Eastern Asia in general?" Melamed said.

"Growth rates in the Russian and CIS markets are high but show a tendency to slow down. By 2011-2012 we will surely see single-digit rates and therefore have to look for markets which are growing at a double-digit pace," he said.

Sistema's main asset is MTS, Russia's largest mobile phone operator. Its other public assets include fixed-line telecom provider Comstar (CMSTq.L: Quote, Profile, Research, Stock Buzz), high-technology firm Sitronics (SITRIq.L: Quote, Profile, Research, Stock Buzz) and real estate developer Sistema-Hals (HALSq.L: Quote, Profile, Research, Stock Buzz).

The London-listed company, majority owned by billionaire Vladimir Yevtushenkov, also spans banking, retail, oil, media, tourism and defense.

Melamed reiterated Sistema did not plan to branch out into new industries beyond its existing portfolio.

(Writing by Maria Kiselyova; Editing by Erica Billingham)