14 Oct 2009 15:17

Moody's affirms MTS, Comstar ratings

MOSCOW. Oct 14 (Interfax) - Moody's Investors Service has confirmed the Ba2 corporate family and senior unsecured ratings of Mobile Telesystems OJSC (MTS) and the Ba3 corporate family rating of Comstar United Telesystems (Comstar) following the completion of the sale by their respective parent Sistema JFSC (B1, outlook negative) of Sistema's 50.91 percent stake in Comstar to MTS for a consideration of US$1.32 billion, the agency said ion a press release.

The transaction is being financed by MTS through a 4 year loan facility from Sberbank. The outlook on the ratings is stable.

The confirmation of the ratings follows Moody's assessment that notwithstanding the debt-financed nature of the transaction and the fact that Moody's does not expect Comstar to be distributing cash to MTS over the near to medium term, MTS liquidity and financial profile will be sufficiently strong on a stand-alone basis to accommodate the additional debt incurred to finance the transaction. While Moody's acknowledges that MTS' standalone proforma leverage on a Gross Debt to EBITDA basis (as adjusted by Moody's) will initially exceed the guideline set for the current rating category of 2.0x, Moody's anticipates that free cash flow and availability liquidity post acquisition will enable the company to very quickly reduce leverage into a range comfortably within the guidance. With respect to Comstar, the decision to confirm the ratings reflects the expectation that there will be few changes to Comstar's stand-alone profile and financial policies as a result of the transfer of ownership from Sistema to MTS. Nevertheless, while noting that the companies are likely to remain separate legal entities in the near to medium term limiting to a large extent the cost synergies that might otherwise have been generated from a full merger, Moody's does recognise that benefits should accrue to the companies from joint marketing initiatives, particularly on the broadband front.

The last rating action on MTS and Comstar was on 6 August 2009 when Moody's placed MTS' and Comstar's ratings on review for possible downgrade following the announcement of an agreement by Sistema JFSC ("Sistema", B1, negative), the parent company of both issuers, to the acquisition by MTS of Sistema's 50.91 percent stake in Comstar for an estimated consideration of US$1.272 billion. The review was to focus on the implications of the debt funded acquisition on the two companies' stand-alone financial profiles as well as the implications from a debt capital structure and liquidity perspective of the funding to be arranged by MTS to finance the transaction.