S&P: Comstar United TeleSystems And Moscow City Telephone Network Off Watch; Affirmed At 'BB/ruAA'; Outlook Stable
November 6, 2009 Standard & Poor's
MOSCOW (Standard & Poor's) Nov. 5, 2009--Standard & Poor's Ratings Services said today that it had affirmed its 'BB' corporate credit and 'ruAA' Russia national scale ratings on Russian telecoms operator Comstar United TeleSystems (JSC) and its majority-owned subsidiary, Moscow City Telephone Network (JSC) (MGTS). The ratings were removed from CreditWatch, where they had been placed with negative implications on April 1, 2009. The outlook on both Comstar and MGTS is stable.
"The affirmation reflects Standard & Poor's view that Comstar's weakened stand-alone credit profile-–given an onerous debt maturity profile--is enhanced, both from a business and financial standpoint, by being owned by a stronger parent," said Standard & Poor's credit analyst Alexander Griaznov.
At this stage, we do not equalize the ratings on Comstar with those on its new parent, Mobile TeleSystems (OJSC) (MTS; BB/Stable/--). However, if MTS increases its equity share in Comstar to more than 75%, and/or demonstrates Comstar's strategic importance and provides timely financial support, we would likely equalize the ratings.
Comstar's stand-alone credit profile is constrained by its ambitious growth strategy, strong competition in the residential broadband market, and a weakening liquidity position.
Supporting the ratings are the company's strong position in the lucrative Moscow market; a resilient cash flow base, stemming from its ownership of existing infrastructure; and a favorable operating performance.
At the end of second-quarter 2009, Comstar's fully adjusted debt totaled $955 million, representing 1.5x its EBITDA for the 12 months ended June 30, 2009. Comstar's cash flow protection metrics also support the ratings. The ratio of funds from operations to total debt stood at 52.3% on June 30, 2009, demonstrating the company's resilient revenue base and adequate cash conversion.
The stable outlook reflects our expectation that Comstar will continue generating robust cash flow, supported by the strong performance of its incumbent subsidiary MGTS. We also factor in expected financial support from MTS, which Comstar might need to service its debt facility.
We would also likely equalize the ratings upon completion of the transaction with the state, which would minimize Comstar's debt.
Any further rating action on MTS would likely trigger a revision of and possible rating action on Comstar.
"We might lower the ratings if we see no financial support from MTS related to servicing Comstar's approaching debt maturities," said Mr. Griaznov.
Company — Comstar UTS
Full nameComstar United TeleSystems