S&P North-West Telecom on Watch Dev
MOSCOW. June 21 (Interfax) - Standard & Poor's Ratings Services has placed its global scale 'BB-' long-term corporate credit and 'ruAA-' Russia national scale ratings on Russian telecoms operator North-West Telecom (JSC) (NWT) on CreditWatch with developing implications, the agency said in a press release.
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 NWT into the larger Rostelecom entity, assuming the absence of any technical or actual liquidity concerns coming out of the reorganization process."
On June 19, 2010, the company's annual shareholders meeting approved NWT'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 NWT's debt holders have the legal right to claim from the company early repayment of their debt in court.
Although S&P has reasons to believe that most debt holders will waive this right, as their NWT debt will be swapped into debt of Rostelecom--a company it considers to be a stronger entity--the amount of these potential claims remains an uncertainty. In addition, NWT 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 NWT's liquidity position.
The ratings on North-West Telecom (JSC) (NWT) are constrained by the company's exposure to Russia's immature capital markets and associated weakening liquidity position, intense competition in the domestic broadband market, limited revenue diversification, and Russia's worsening economic environment. Further constraints on the ratings are what Standard & Poor's regards as risks associated with ongoing industry and regulatory reform.
At the same time, the ratings continue to benefit from NWT's leading position in traditional telephony, its improving operational efficiency, and its strengthening profitability. Also taken into account are NWT's moderate debt levels and historically prudent financial policy.
S&P expects to resolve the CreditWatch placement within the next three months.
It will analyze the impact of the reorganization on NWT's liquidity position, and compare the total amount of financial claims on NWT from debtholders and shareholders with the available liquidity resources. Based on this information, we could affirm, lower, or raise the ratings," said Griaznov.