London, 30 May 2017 -- Moody's Investors Service has today assigned a provisional (P)Ba2
senior unsecured rating and LGD4 to the new bonds to be issued by VimpelCom
Holdings B.V, a 100% indirectly-owned subsidiary
of VEON Ltd. (Ba2 stable).
Moody's has also placed the Ba3 senior unsecured rating of the outstanding
bonds of GTH Finance B.V. guaranteed by VimpelCom Holdings
B.V. on review for upgrade.
Concurrently, Moody's affirmed VEON Ltd.'s Ba2
corporate family (CFR) and Ba2-PD probability of default (PDR)
ratings, the Ba2 issuer rating of VimpelCom PJSC, the Ba2
senior unsecured ratings of VIP Finance Ireland Limited and the Ba2 senior
unsecured ratings of the outstanding bond instruments issued by VimpelCom
Holdings B.V. and guaranteed by VEON's operating subsidiary
VimpelCom PJSC.
The outlook on all ratings is stable except for GTH Finance B.V.
which is on review.
RATINGS RATIONALE
The action reflects Moody's expectation that within the next 9-12
months VEON will complete the transformation of its debt/capital structure
- moving to a predominantly unsecured and unguaranteed centralised
group-financed model from the current subsidiary-financed
model. VimpelCom Holdings B.V will act as the main borrower
for the VEON group of companies, and manage liquidity within the
group by orchestrating distribution of proceeds and managing group's
repayments from diversified cash flow sources including dividends,
proceeds from the sale of assets and intracompany loans. Debt investors
will have a single credit reference and benefit from pari passu credit
ranking of the majority of the group's obligations. As part
of the process, VEON will also reduce its currently significant
foreign exchange risks associated with debt/cash flow currency mismatch.
As the first step, in April-May 2017 VEON refinanced approximately
$1.1billion worth of subsidiary RUB-denominated bank
debt at VimpelCom Holdings B.V level, and repaid $600
million of subsidiary/ guaranteed debt. Next, VEON will consider
a voluntary "any and all" offer to holders of USD bonds issued
or guaranteed by PJSC VimpelCom to tender their holdings. VEON
expects to fund the tender offer predominantly via issuance of new debt
at VimpelCom Holdings B.V., including the new bond.
Further steps, such as repayment and prepayment of upcoming maturities
within the next 9 months will help to reduce subsidiary and subsidiary-guaranteed
debt to less than 15% of total financial debt of the group (excluding
debts at Global Telecom Holding S.A.E and its subsidiaries,
where Moody's maintains separate CFRs).
DEFINITIVE BOND RATING AND CONCLUSION OF REVIEW FOR POSSIBLE UPGRADE
Moody's aims to assign a definitive rating to the new bond and conclude
the review on the GTH Finance B.V. bonds within the next
60 days. During this period VEON should demonstrate sufficient
progress in transitioning to the new unguaranteed structure.
STRUCTURAL CONSIDERATIONS
The (P)Ba2 rating assigned to the new bonds is the same as VEON's
corporate family rating (CFR), which reflects Moody's view that
the proposed bond will rank pari passu with other outstanding senior unsecured
debt issued by or guaranteed by VimpelCom Holdings B.V.,
where the majority of the group's debt will be located following
completion of the debt restructuring programme. The documentation
of the proposed bond contains standard terms and conditions such as a
negative pledge with permitted liens. The bond will have a cross
default clause with VEON's significant subsidiaries.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on VEON's ratings reflects Moody's expectation that
the company will sustainably maintain its leverage around 3.0x
on an adjusted gross-debt basis and trend towards 2.0x on
a net-debt basis (unadjusted, consistent with the internal
financial policy), and adjusted RCF/Debt above 20%.
The agency expects that VEON will maintain a robust liquidity profile
and address its refinancing needs in a timely fashion.
WHAT COULD CHANGE THE RATING UP/DOWN
A sustainable reduction in leverage measured by gross debt/EBITDA towards
2.5x and below and strengthening of coverage metrics would exert
positive pressure on the ratings, provided that there are no negative
developments in the company's operating profile, market positions
and liquidity.
Conversely, a material deterioration in VEON's operating and
financial profile measured by (1) an increase in leverage measured by
gross debt/EBITDA above 3.5x, and (2) a weakening of RCF/debt
to below 20% on a sustained basis would put pressure on the ratings.
We would assess any material acquisition/shareholder distribution;
such actions could exert negative pressure on the ratings.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Headquartered in Amsterdam, the Netherlands, VEON Ltd.
(VEON, former VimpelCom Ltd.) is an international telecoms
company operating in 13 countries. It consolidates VimpelCom PJSC
(Russia), Kyivstar G.S.M. Joint Stock Company
(Ukraine), and Global Telecom Holding S.A.E.,
and operates in Russia, Ukraine, Kazakhstan, Italy,
Algeria, Pakistan, and the Commonwealth of Independent States
(CIS). VEON operates in Italy via a 50/50 joint venture with CK
Hutchison Holdings Limited (A3 stable) - Wind Tre S.p.A.
(B1 positive). VimpelCom is 47.9% owned by LetterOne
(not rated), 19.7% by Telenor ASA (A3 stable),
8.3% by the Stichting Administratiekantoor Mobile Telecommunications
Investor (the "Stichting") and 24.1% is in free
float. In the last 12 months to 30 March 2017, VimpelCom
generated revenue of $9.1 billion and Moody's-adjusted
EBITDA of $3.9 billion.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Julia Pribytkova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454