MTS' loss of its business in Uzbekistan is rating neutral - Moody's
LONDON. Sept 25 (Interfax) - Moody's Investors Service said on Tuesday that the Ba2 corporate family rating (CFR) and stable outlook of Mobile TeleSystems OJSC (MTS) are unaffected by the recent confiscation of assets of its wholly-owned Uzbek subsidiary Uzdunrobita LLC.
The service said in a press release: "At the same time, Moody's views the loss of cash-generating Uzbek business as moderately credit negative for MTS.
"On 17 September 2012, MTS announced that the Uzbek court has issued a ruling to confiscate all assets of Uzdunrobita in favour of the Uzbek state, in connection with a judgment against four employees of Uzdunrobita.
"Uzdunrobita had virtually no debt and has contributed a modest portion of MTS' consolidated reported EBITDA -- approximately 5% -- over the last 12 months to June 2012. Therefore, its loss will translate into only a small increase (around 0.1x) in MTS' reported debt/EBITDA of around 1.8x. Given that Uzdunrobita has not paid any dividends to its parent MTS, being effectively a standalone entity as opposed to helping to service the group's debt, the impact of its exclusion from the group's cash-generating base is limited to one-off accounting effects.
"Given its strong disagreement with the accusations imputed to Uzdunrobita and its employees, MTS might appeal to an international court to dispute the Uzbek court's decision. Moreover, MTS would likely dispute any potential recourse claims against it by the Uzbek court resulting from the imputed infliction of losses for the Uzbekistan state by Uzdunrobita.
Moody's does not rule out the possibility that MTS might settle its disagreements with the Uzbek authorities and resume its business in Uzbekistan. MTS did this with its business in Turkmenistan, re-launching it in Q3 2012 following its suspension in 2011 due to licensing issues, although Moody's makes no comparisons between the two cases.
"In Moody's view, the Uzdunrobita case is evidence of the less developed political and legal framework in the Commonwealth of Independent States (CIS), which the rating agency factors into most of the ratings it assigns to corporates in this region. As a result, the ratings of corporates domiciled in the CIS are generally lower than the ratings of companies with similar financial profiles but operating in developed markets. Nevertheless, Moody's will continue to assess the operating environment risks separately for different CIS countries.
"MTS is one of the leading integrated telecommunications groups in Russia, with the highest mobile market share in terms of subscribers as of June 2012 -- 31% -- according to Advanced Communications and Media (AC&M), a research agency. In the last 12 months to 30 June 2012 MTS' revenues amounted to $12.4 billion and EBITDA, as adjusted by Moody's, to $5.8 billion. As of the same period, the company derived a dominant 85% portion of its revenue from its operations in Russia, 9% in Ukraine, 4% in Uzbekistan and 2% in Armenia."