February 18, 2008 | Cbonds
|Fitch Ratings-London/Moscow-18 February 2008: Fitch Ratings has today affirmed OAO Sibirtelecom's ("Sibir") Long-term Issuer Default Rating (IDR) at 'B+' with Stable Outlook and Short-term IDR at 'B'. |
The ratings reflect Sibir's dominant market position in its area of operations in eastern and much of western Siberia. Sibir controls about 80% of fixed lines in its operating territory and its market share by revenue is high. As the company owns the most developed last mile and backbone network in the area its market share in the residential segment is likely to remain unrivalled. However, competition in the business segment is likely to intensify in the medium- to long-term.
Sibir holds a fairly stable market share in the mobile segment; it is the third leading mobile operator in the Siberian Federal Region of Russia. The company continues to demonstrate subscriber growth, which, coupled with healthy profitability margins in the mobile segment, contributes positively to Sibir's overall profitability and cash generation. The ratings also take into consideration the company's high internet access market share and the broadband segment's growing contribution to profitability.
The Stable Outlook reflects Fitch's expectations that Sibir will be able to largely sustain its shares in the local services and mobile markets and to grow its broadband and other 'new services' ahead of competition.
Despite increasing cash flow from operations, Sibir is likely to remain free cash flow- negative in the next two years due to investments in fixed-line digitisation, mobile network maintenance and broadband network roll-out. Its high investment budget has led to an increase in net debt to RUB19bn at end H107, while leverage (measured as net debt/EBITDA on LTM basis) remained at 2.2x. Fitch does not expect leverage to have significantly declined in 2007; although gradual de-leveraging after 2007 is possible as capex needs decline. The agency notes that capex for fixed-line digitisation is scalable without significant loss of margins and profitability; capex may be significantly cut with positive implications for cash flow generation and liquidity.
At end-H107, short-term debt (less than one year) was reported at 49% of Sibir's total, up from 33% at end-2006. Though this figure may fluctuate, it is, in Fitch's view, unlikely to have gone below 30% at end-2007. Representing a significant share of the short-term debt is a RUB3bn domestic bond maturing in April 2008. Though Fitch expects Sibir to rely on state-owned banks for refinancing, such new debt is likely to be short term, reflecting liquidity pressure in the Russian banking system. As a result, refinancing risks would remain. Fitch notes there is another RUB2bn domestic bond maturing in May 2009.
Sibir's strategy is largely shaped by its majority shareholder, government-controlled Svyazinvest. The ratings reflect Svyazinvest's strong influence on the decision-making process at Sibir and its lobbying support.
Company: Rostelecom - Siberia
|Full company name||Rostelecom - Siberia|
|Country of risk||Russia|
|Country of registration||Russia|