S&P: Russian Central Telecommunications On CreditWatch Developing On Reorganization For Merger With Rostelecom
June 28, 2010 Standard & Poor's
MOSCOW (Standard & Poor's)--June 28, 2010--Standard & Poor's Ratings Services said today that it had placed its global scale 'BB-' long-term corporate credit and 'ruAA-' Russia national scale ratings on Russian telecoms operator Central Telecommunications (OJSC) (CTC) 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/--).
"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," said Standard & Poor's credit analyst Alexander Griaznov. "At the same, we would view as positive for the ratings a merger of CTC into the larger Rostelecom entity, assuming the absence of any technical or actual liquidity concerns coming out of the reorganization process."
On June 25, 2010, the company's annual shareholders meeting approved CTC'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 CTC's debt holders have the legal right to claim from the company early repayment of their debt in court.
Although we have reasons to believe that most debt holders will waive this right, as their CTC 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, CTC 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 CTC's liquidity position.
The rating on CTC is constrained by the company's exposure to Russia's weak capital markets, limited revenue diversity, and increasing competition in the most lucrative areas, such as Moscow Oblast. Uncertainties about reorganization of the company's parent, Svyazinvest (OJSC), serve as an additional rating constraint.
The rating is supported by CTC's resilient market share (more than 70% of the fixed-line market), its vast network in European Russia's central region, and its ownership of last-mile access to 6.7 million customers.
We expect to resolve the CreditWatch placement within the next three months. We will analyze the impact of the reorganization on CTC's liquidity position. We will compare the total amount of financial claims on CTC from debtholders and shareholders with the available liquidity resources.
"Based on this information, we could affirm, lower, or raise the ratings," said Mr. Griaznov.
Company — Rostelecom - Center
Full nameRostelecom - Center