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Rating Action:

Moody's rates VEON's new bond (P)Ba2, places GTH Finance B.V. bonds on review for upgrade

30 May 2017

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
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United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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