UBS and Deutsche Bank were named joint bookrunners to sell the stake in Russia's No. 1 mobile phone company, worth around $1.5 billion at market prices, via an accelerated bookbuilding.
A source close to the deal said the placement could be priced at 205 to 210 rubles ($7.30 to $7.40) per share, at a relatively tight discount to MTS's illiquid local shares, which traded flat at 217 rubles.
"The placement has met with good interest," the source said.
Fund managers agreed that investor demand was strong. "It's good that we are seeing this deal being closed quickly -- it shows that people have the cash," one said.
Not all investors were enthusiastic, however, with another fund manager holding out for a cheaper price after Deutsche Telekom sold a chunk of MTS at a 12 percent discount last year.
"If there's any free money, we will participate. If there isn't, we won't," said the second fund manager.
Anton Inshutin, an investment banker at Deutsche Bank's Moscow affiliate, United Financial Group, said he expected the placement to go to a mix of international and local investors.
Sistema, a services group which raised $1.6 billion in a record-breaking London share offering this year, said earlier that it had decided not to buy out Deutsche Telekom's remaining MTS stake.
"We were looking at this as a financial investment. But right now we've got some things to do that are more high priority," Andrei Bliznyuk, Sistema's head of capital markets, said.
Sistema had right of first refusal on the shares under an agreement struck when Deutsche Telekom first reduced its stake in MTS after declaring it a nonstrategic asset.
But that right lapsed recently as it became clear the two sides had not been able to agree on a price.
Sistema recently spent $500 million on acquisitions in the oil sector and is building a war chest for the planned privatization of Russian telecoms holding company Svyazinvest, which the government says is worth $3 billion.
Sistema already has outright control over MTS, with a 50.4 percent stake, and has said it would only consider raising its stake in the mobile phone firm, which has 48 million clients in Russia and the former Soviet Union, as a financial investment.
The placement is being made on the Russian market because New York-listed MTS has already virtually exhausted a 40 percent limit on issuance of American Depositary Receipts.
MTS stock has underperformed the wider Russian market this year as it engaged in a cutthroat battle with main rival VimpelCom to win new customers in the maturing Russian marketplace. Its ADRs are up 13 percent in the year to date, lagging the MSCI Russia index, which is ahead by 42 percent.
A Message from The Moscow Times:
Dear readers,
We are facing unprecedented challenges. Russia's Prosecutor General's Office has designated The Moscow Times as an "undesirable" organization, criminalizing our work and putting our staff at risk of prosecution. This follows our earlier unjust labeling as a "foreign agent."
These actions are direct attempts to silence independent journalism in Russia. The authorities claim our work "discredits the decisions of the Russian leadership." We see things differently: we strive to provide accurate, unbiased reporting on Russia.
We, the journalists of The Moscow Times, refuse to be silenced. But to continue our work, we need your help.
Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and every contribution makes a significant impact.
By supporting The Moscow Times, you're defending open, independent journalism in the face of repression. Thank you for standing with us.
Remind me later.