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Standard & Poor's: Russia-Based Central Telecommunications Co. (OJSC) Upgraded To 'BB' On Lower Liquidity Risk; Outlook Stable

November 30, 2010 Standard & Poor's
MOSCOW (Standard & Poor's) Nov. 30, 2010--Standard & Poor's Ratings Services said today it raised its long-term corporate credit rating on Russian regional telecommunications operator Central Telecommunications Co. (OJSC) (CTC) to 'BB' from 'BB-'. The outlook is stable. At the same time, the national scale rating on CTC was raised to 'ruAA' from 'ruAA-'. The ratings were removed from CreditWatch, where they were placed with developing implications on June 28, 2010.

"The rating actions mainly reflect our view of the improvement in CTC's financial profile," said Standard & Poor's credit analyst Alexander Griaznov. "We have affirmed our assessment of CTC's liquidity as "adequate". The risk of early repayment claims from the company's creditors, which we previously indicated as a possible near-term risk, is now eliminated, as the window for such claims is now closed. In addition, the company managed to decrease its reliance on short-term debt in 2010 in line with a decline in overall leverage."

CTC's debt leverage declined significantly over the past 12 months. As of June 30, 2010, the ratio of debt to EBITDA was 0.9x, a considerable improvement from 1.7x a year ago. Cash flow generation remains robust: The ratio of funds from operations to debt was 83.2% for the 12 months ended June 30, 2010.

The ratings on CTC are 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. The ratings are supported by CTC's resilient market share (more than 70% of the fixed-line market), vast network in European Russia's central region, and ownership of last-mile access to 6.7 million customers.

"The outlook is stable because we believe that CTC will continue its strong operating performance, generate positive free cash flow, and maintain adequate liquidity," said Mr. Griaznov.

We will withdraw the rating on CTC when its merger with OJSC Rostelecom is finalized because after closing of the transaction, Central Telecommunications Co. will cease to exist as a separate legal entity.

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    Rostelecom - Center
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