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S&P: Russia's VolgaTelecom On CreditWatch Developing On Reorganization For Merger With Rostelecom

June 22, 2010 Standard & Poor's
MOSCOW (Standard & Poor's) June 21, 2010--Standard & Poor's Ratings Services said today that it placed its global scale 'BB-' long-term corporate credit and 'ruAA-' Russia national scale ratings on Russian telecoms operator VolgaTelecom (OJSC) on CreditWatch with developing implications.

"The CreditWatch placement reflects the uncertainties triggered by the company's decision to reorganize in order to be merged into OJSC Rostelecom (BB/Stable/--)," said Standard & Poor's credit analyst Alexander Griaznov.

We are particularly concerned about the potential impact of reorganization on the company's liquidity position which, if it deteriorates, could put downward pressure on the ratings. At the same, we would view as positive for the ratings a merger of VolgaTelecom into the larger Rostelecom entity, assuming the absence of any technical or actual liquidity concerns coming out of the reorganization process.

On June 21, 2010, the company's annual shareholder meeting approved VolgaTelecom's reorganization for merger into Rostelecom. This transaction is part of the restructuring of state-owned telecoms holding company Svyazinvest OJSC (not rated), which must also be approved by Rostelecom's shareholders. In compliance with Russian legislation, all of VolgaTelecom's debtholders have the legal right to claim from the company early repayment of their debt in court--although we have reason to believe that most debtholders will waive this right.

Standard & Poor's Ratings Services considers the ratings on VolgaTelecom to be constrained by the company's exposure to Russia's weak capital markets, a weakening domestic economy, and intense competition in the mobile telephone segment. We view uncertainty related to the reorganization of the company's parent, Svyazinvest, as a further rating constraint. The ratings continue to be supported by VolgaTelecom's resilient market position in its franchise area, increasing revenue diversity, and a superior network compared with that of its key peers.

"We expect to resolve the CreditWatch placement within the next three months," said Mr. Griaznov, "and we will analyze the impact of the reorganization on VolgaTelecom's liquidity position."
Company — Rostelecom - Volga
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    Rostelecom – Volga
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