S&P: Russian Telco Uralsvyazinform On CreditWatch Developing On Reorganization For Merger With Rostelecom
June 24, 2010 Standard & Poor's
MOSCOW (Standard & Poor's) June 24, 2010--Standard & Poor's Ratings Services said today that it had placed its global scale 'B+' long-term corporate credit rating on Russian telecoms operator Uralsvyazinform (OJSC) on CreditWatch with developing implications.
The CreditWatch placement reflects the uncertainties triggered by Uralsvyazinform's decision to reorganize in order to be merged into OJSC Rostelecom (BB/Stable/--).
"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 rating," said Standard & Poor's credit analyst Alexander Griaznov. "At the same, we would view as positive for the rating a merger of Uralsvyazinform into the larger Rostelecom entity, assuming the absence of any technical or actual liquidity concerns coming out of the reorganization process."
On June 23, 2010, the company's annual shareholders meeting approved Uralsvyazinform's reorganization for merger into Rostelecom. This transaction is part of the restructuring of state-owned telecoms holding company Svyazinvest OJSC and must also be approved by Rostelecom's shareholders. In compliance with Russian legislation, all of Uralsvyazinform's debt holders have the legal right to claim from the company early repayment of their debt in court.
Although we have reason to believe that most debt holders will waive this right, as their Uralsvyazinform debt will be swapped into debt of Rostelecom--a company we consider to be a stronger entity--the amount of these potential claims remains an uncertainty. In addition, Uralsvyazinform shareholders opposing the reorganization have the right to sell their stock to the company. Although the latter right is limited to 10% of the company's net assets, it potentially creates additional pressure on Uralsvyazinform's liquidity position.
The rating on Uralsvyazinform is constrained by our view of the company's exposure to weak Russian capital markets, which limits the company's liquidity; a weakening domestic economic environment; and intense competition in the mobile segment. Uncertainties related to the reorganization of Uralsvyazinform's parent company Svyazinvest are additional rating constraints.
The rating is supported by Uralsvyazinform's cash-generative profile, dominant position in the Ural region's fixed-line segment, resilient market share in mobile telephony, and rapidly expanding broadband segment.
We expect to resolve the CreditWatch placement within the next three months. We will analyze the impact of the reorganization on Uralsvyazinform's liquidity position. We will compare the total amount of financial claims on Uralsvyazinform from debtholders and shareholders with the available liquidity resources.
"Based on this information, we could affirm, lower, or raise the rating," said Mr. Griaznov.
Company — Rostelecom - Ural
Full nameRostelecom - Ural