Fitch Affirms OAO Sibirtelecom at ‘B+’; Outlook Stable
March 27, 2009 "Fitch Ratings"
Fitch Ratings, Moscow, 27 March 200926 March 2009: Fitch Ratings has today affirmed OAO Sibirtelecom’s (Sibir) Long-term Issuer Default rating (IDR) at ‘B+’ and Short-term IDR at ‘B’. The Outlook on the Long-term IDR is Stable.
Sibir is an incumbent with strong market shares in key sectors of operation and an established business franchise. Like its Svyazinvest-group peers, its operations benefit significantly from its wide backbone and ‘last mile’ network infrastructure, as well as from a benign regulatory environment in Russia. Fitch believes that Sibir’s revenue should remain resilient in the prevailing economic downturn, supported by broadband and mobile revenue growth as well as local voice segment tariff indexation. Resilient revenue stream and cost control measures introduced by Sibir should help maintain the EBITDA margin at the 2007 level, in a range of 34%-35%.
The ratings are constrained by considerable refinancing risks, with short-term debt representing about 31% of the total debt at end-9M08, as estimated by Fitch. Cash and untapped credit facilities at FYE08 did not fully cover refinancing risks in 2009. The agency believes that Sibir, similar to its Svyazinvest peers, has significant room to improve free cash flow generation (FCF) cutting capex considerably, therefore releasing cash for debt repayments. Sibir has already committed to approximately 30% capex deferral in 2009 and, in the agency’s view, can further reduce capex without compromising its market position. By Fitch’s estimate, capex reduction of a further 20%-30% should make Sibir deeply FCF-positive in 2009.
The ratings take into consideration the ownership-driven relationships of Sibir’s main shareholder, state-controlled OAO Svyazinvest, with state banks. Fitch believes these relationships should aid Svyazinvest’s 2008-2009 refinancing negotiations to the benefit of group companies, including Sibir.
Fitch believes that a tight credit environment and a significant capex programme had limited Sibir’s debt reduction efforts in 2008, with leverage estimated to have remained at the 2007 level of 1.7x. In the agency’s view, debt reduction in 2009 should take the leverage to below 1.7x as Sibir seeks to mitigate refinancing risks. This leverage of under 1.7x is fairly low for the current ratings and should help secure funding from banks.
Company — Rostelecom - Siberia
Full nameRostelecom - Siberia