The Russian government has acquired a 20 percent stake in fledgling Indian mobile network Sistema Shyam TeleServices Ltd (SSTL) for US$676.9 million. The operator will use the funds to build-out its network across the world’s second-largest mobile market. SSTL will issue 662.75 million shares, representing a 19.8 percent stake, on a preferred basis to the Russian Federal Property Agency at RUB49.31 (US$2) each, the company said. The unlisted firm is 73.71 percent-owned by Russian conglomerate Sistema, while India’s Shyam Group holds 23.79 percent. The remainder is held by minority shareholders. A Sistema source at Dow Jones Newswires described the deal as a “financing arrangement,” saying Sistema will pledge to buy back the government’s SSTL shares in five years’ time. The deal will reduce the holding of Sistema in the Indian company to about 54 percent. The allotment of shares to the Indian founders will, however, help SSTL keep the total foreign stake in it below India’s mandated limit of 74 percent.

“The new share-holding pattern will improve the financial stability of SSTL and will increase its share value,” said SSTL CEO Vsevolod Rozanov. He had earlier noted that the Russian investment would come from the country’s reserve balance of US$2 billion, currently held at India’s central bank as part of an agreement between the two countries. SSTL is a CDMA-based mobile operator providing services in eight of India’s 22 telecom service areas. According to Wireless Intelligence data, SSTL had just under 2 million connections by the end of the third quarter.