Russia's Megafon prepares to spin off masts business

* Recommends additional dividends above target

* Shares (Berlin: DI6.BE - news) rise 2 pct

* Says Q3 sales edge up 0.3 pct year-on-year (Adds CEO's comments on spin-off of masts business, details on revenues, dividends, share price reaction)

By Maria Kiselyova

MOSCOW, Oct (HKSE: 3366-OL.HK - news) 29 (Reuters) - Megafon , Russia's second-biggest mobile network operator, plans to put its 14,000 masts across Russia into a wholly-owned subsidiary with a view to selling it off, the company said on Thursday.

The spin-off would eventually raise cash for investments but first the business has to be separated, a process which will still take many months, Chief Executive Ivan Tavrin told reporters on a conference call, declining to give an estimate for its value.

Rival Vimpelcom, the country's third-biggest mobile operator, told Reuters Summit last month it was also considering selling its towers in Russia.

Russian mobile firms have seen revenue growth and margins fall as the economic crisis caused by lower oil prices and Western sanctions over Ukraine has hit consumer and corporate spending and a weaker rouble pushed up the cost of network equipment.

In April Megafon, whose biggest shareholder is Russian tycoon Alisher Usmanov, announced it would split payment this year of the dividends due on last year's profits with the larger portion of the payments to be pushed back to the fourth quarter.

On Thursday, Megafon said this final payment would amount to 40 billion roubles ($620 million), or 64.51 roubles per share, bringing the total payout this year to 50 billion roubles, or 80.64 roubles a share, 25 percent above the minimum payout it promised in April (LSE: 0N69.L - news) .

Shares in Megafon were up 2 percent at 828 roubles by 1139 GMT, when the main Russian market index was down 0.7 percent .

FLAT REVENUE

Earlier on Thursday Megafon reported a 0.3 percent rise in its third-quarter revenue to 81.3 billion roubles ($1.3 billion), driven by a 25 percent rise in data revenue to 21.6 billion roubles due to the introduction of low-cost smartphones.

But operating income before depreciation and amortisation (OIBDA) fell 3 percent to 36.1 billion roubles on higher advertising expenses, rent and utility costs due to network expansion and an increase in taxes.

The OIBDA margin slipped to 44.5 percent from 46 percent a year earlier and Megafon said it expected constraints in consumer spending and intensified competition to exert downward pressure on profitability.

It (Other OTC: ITGL - news) raised its OIBDA margin forecast for the year to 41.5 percent from 40 percent but reiterated that it expected total sales to be flat.

Net (LSE: 0LN0.L - news) profit rose 4 percent to 13.3 billion roubles, beating the 11.8 billion average forecast given in a Reuters poll of analysts, thanks to foreign exhange-related gains. ($1 = 64.4000 roubles) (Editing by Jack Stubbs and Greg Mahlich)