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Moody's upgrades MegaFon's CFR to Ba2; outlook stable

January 15, 2008 | Cbonds

London, 14 January 2008 -- Moody's Investors Service has today upgraded the
corporate family rating of OJSC MegaFon ("MegaFon" or "the company") to Ba2
from Ba3. Concurrently, Moody's upgraded the existing US$375 million senior
notes to Ba2 from Ba3. The probability of default rating was also upgraded
to Ba2. The outlook on the ratings is stable.

The upgrade reflects (i) the company's continued strong operating
performance; (ii) increased visibility as regards 3G capital expenditures;
and (iii) positive developments in the shareholder disputes.

In Q3 2007, revenue and EBITDA expressed in roubles increased by 33.6% and
41.9% respectively when compared to Q3 2006. ARPU increased to approximately
US$15 from US$13 in Q3 2006 despite a continued subscriber growth. Moody's
notes that year-on-year comparative ARPU statistics are positively impacted
by approximately 10% due to US Dollar depreciation against Russian rouble.

Following the award of 3G license, MegaFon is rolling-out a 3G network for
which it intends to spend approximately US$250 million in 2008.
Overall, capital expenditures are likely to remain relatively high at over
20% of revenue in 2008. Despite this, Moody's expects the company to
generate positive free cash flow. Moody's also notes that MegaFon is
interested in evaluating M&A transactions on a selective basis. The Ba2
rating does not factor in any material acquisitions.

Moody's understands that there have been some recent developments in the
prolonged shareholder disputes related to the company's ownership. In
November 2007, Alfa Group and IPOC Growth Fund dismissed court claims
against each other. As a result, Alfa Group is recognised as a 25.1%
MegaFon's shareholder through its ownership stake in CT Mobile (an ownership
stake which was previously disputed).

Moody's, however, cautions that questions still remain over how the
company's shareholding structure could be evolving going forward and the
agency notes that it is reasonably likely that it could undergo some changes
over the near term. The Ba2 rating assumes that if any changes in the
shareholder structure were to occur, they would not lead to a change in
financial policies that could materially weaken the company's current credit
profile. Further upward movement in the rating is likely to be predicated on
increased visibility regarding the questions relating to possible future
changes in its shareholding structure and the impact if any of such a change
on the company's financial, and in particular, shareholder remuneration

MegaFon is a third largest mobile operator in Russia. It is the only mobile
operation covering all regions in the Russian Federation, and a relatively
minor presence in the Republic of Tajikistan.

Company: Megafon

Full company nameMegafon
Country of riskRussia
Country of registrationRussia


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