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03 Feb 2014
London, 03 February 2014 -- Moody's Investors Service has today said that it views recent updates
VimpelCom Ltd (Ba3 stable) has made to its financial policy as credit
positive for the group. The updated policy prioritises deleveraging
and investment in 3G/4G mobile data network over dividend payouts.
The new policy should support the group's financial metrics and
competitive positions. However, any positive pressure on
the rating will depend on the development of the group's financial
metrics as a result of both the implementation of its new financial policy
and its operating performance.
On 28 January, VimpelCom announced that it intends to (1) limit
its dividend payouts to $0.035 from $0.8 per
share until it deleverages to reported net debt/EBITDA of below 2.0x,
and (2) focus on deleveraging and investment in the expansion of its 3G/4G
mobile data network, with capital expenditure (capex) accounting
for 21% of the group's revenue in 2014.
The announced policy, in and of itself, does not translate
into immediate positive pressure on VimpelCom's rating. The
impact on the rating will depend on the evolution of the group's
financial metrics as a result of the implementation of the updated financial
policy. As yet, VimpelCom has not disclosed details of whether
it plans to use the cash saved on dividends for either debt reduction
or financing capex, and which entities within the group will be
Moody's notes that VimpelCom's Ba3 corporate family rating
(CFR) continues to reflect the company's ongoing reliance upon its
Russian and Ukrainian subsidiaries consolidated under VimpelCom Holdings
B.V., which continue to determine VimpelCom's
financial flexibility. As such, Moody's primarily bases
its assessment of VimpelCom's business and financial profile on
Moody's estimates that as of year-end 2013 VimpelCom Holdings'
leverage stood at around 2.4x adjusted debt/EBITDA, materially
exceeding 2.0x, which is the threshold for an upgrade of
VimpelCom's Ba3 CFR. Should VimpelCom apply all cash saved
on dividends in 2014 to repay debt consolidated at the VimpelCom Holdings'
level (as opposed to repaying debt at VimpelCom's highly leveraged
business in Italy consolidated under Wind Telecom S.p.A.),
the company's leverage would not necessarily decline below 2.0x.
This is because deleveraging will also depend on the company's ability
to preserve its historically strong operating performance in the highly
competitive core Russian market, which is yet to be evidenced.
The rating agency recognises the long-term positive effect of VimpelCom's
investment in the expansion of its 3G/4G networks, as operations
in the lucrative mobile data segment are likely to be the main driver
for the group's revenues growth in the medium term. The scale
and quality of those networks are likely to be one of the key factors
for the group in maintaining its extensive subscriber base, particularly
in Russia. However, it will take time for increased investment
in the 3G/4G networks to translate into meaningful revenues and earnings
Domiciled in Bermuda and headquartered in the Netherlands, VimpelCom
Ltd is a holding company for Vimpel-Communications OJSC (Ba3 stable),
Kyivstar (unrated), Wind Telecomunicazioni S.p.A.
(B1 negative), and Global Telecom Holding S.A.E.
(unrated), with strong positions in Russia, Ukraine,
Kazakhstan, Italy, Algeria, Pakistan, and operations
in countries in the Commonwealth of Independent States (CIS), Africa,
South-East Asia and North America.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Associate Managing Director
Corporate Finance Group
Moody's: Updated Financial Policy Is Credit Positive for VimpelCom Ltd
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
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