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28 Oct 2016
London, 28 October 2016 -- Moody's Investors Service, ("Moody's) has today
upgraded the corporate family rating (CFR) of VimpelCom Ltd to Ba2 from
Ba3, and the probability of default rating (PDR) to Ba2 -PD
from Ba3-PD. Concurrently the agency upgraded the long-term
issuer ratings of VimpelCom PJSC to Ba2 from Ba3 and the senior unsecured
ratings of its guaranteed debts issued by VIP Finance Ireland Limited
and VimpelCom Holdings B.V., to Ba2 (LGD 3) from Ba3
(LGD 3). Moody's has also upgraded the senior unsecured rating
of the debts issued by GTH Finance B.V. and guaranteed by
VimpelCom Holdings B.V. to Ba3 (LGD 5) from B1 (LGD 5).
The outlook on all ratings is stable.
Today's action reflects Moody's view that the financial and
operational risks related to the ownership of Wind Telecomunicazioni S.p.A.
(Wind, B2 positive), a highly leveraged telecommunications
asset in Italy, have substantially subsided for VimpelCom as a result
of its deal with CK Hutchison Holdings Limited ("CK Hutchison",
A3 stable). The deal, approved by the European Commission
on 1 September 2016 and by the Ministry of Economic Development of Italy
on 24 October 2016, combines VimpelCom's 100% owned subsidiary
Wind with Hutchison's subsidiary 3 Italia S.p.A (not rated)
in a 50/50 joint venture. Whilst Moody's maintains a view
that deconsolidation of Wind's debt does not fully relieve VimpelCom's
credit profile of all contingent liabilities associated with high levels
of Wind's indebtedness, the agency considers such risks largely
mitigated by the partnership with a strong strategic investor such as
Hutchison. Moody's notes that the JV transaction was set
up as cash free for Vimpelcom while Hutchison contributed EUR200 million,
however the agreement envisages a possibility of partner buyout in three
years' time (i.e. in 2019), which may create
additional cashflow opportunities for VimpelCom.
Other recent developments such as (1) the successful sale of 51%
stake in VimpelCom's asset Djezzy (not rated) in Algeria,
which brought VimpelCom a meaningful cash consideration and allowed it
to regain access to Djezzy's dividends from 2016, (2) completion
of the cash settlement relating to the US and Dutch authorities'
investigation of the company's activities in Uzbekistan in 2016,
and (3) self-sufficiency in cash generation achieved by the subsidiaries
Pakistan Mobile Communications Limited (B1, stable, operating
under a brand Mobilink) and Banglalink Digital Communications Limited
(Ba3, stable) in 2015, support Moody's view that VimpelCom's
risk profile has materially improved. While Russia contributed
49% to the group's revenue and 44% to its EBITDA in
full-year 2015 (after deconsolidation of Wind from Q3 2015),
as well as the bulk of the dividend flow, Moody's expects
other subsidiaries including Ukraine to provide up to 50% of the
dividend flow available to the group by 2018-19.
VimpelCom's Ba2 CFR reflects (1) the company's strong positions in its
key markets: third largest in terms of subscribers in Russia with
57.4 million subscribers, first largest in the Ukraine with
25.4 million subscribers and in Pakistan with 39.1 million;
and second largest in Bangladesh with 31.1 million; (2) VimpelCom's
improving financial metrics and diminishing risks as the group streamlines
its asset structure in several ways, including via disposals;
and (3) the company's solid liquidity and balanced debt maturity profile,
underpinned by its meaningful cash balances.
Whilst this upgrade narrows the differential between the ratings of VimpelCom
and its Russian peers Mobile Telesystems PJSC (MTS, Ba1 negative)
and Megafon PJSC (Ba1 negative) to one notch from two previously,
we still note that 1) VimpelCom maintains leverage higher than its peers
as measured by gross debt/EBITDA, although on a net-debt
basis the metrics are more comparable; 2) somewhat weaker profitability
and financial metrics, in particular debt coverage; 3) elevated
foreign currency risk, with more than 70% of the company's
debt denominated in US dollars and revenues in roubles, hryvnias
and other currencies.
Despite broader geographical diversification than its Russian peers,
VimpelCom remains exposed to the Russian market, with its high saturation
levels and challenging competitive landscape. In addition,
falling personal incomes and an economic slowdown in Russia, Ukraine
and the CIS countries amid devaluation of local currencies and elevated
cost inflation will, in our view, continue to put pressure
on all the telecommunications operators, including VimpelCom's
subsidiaries in these countries in the next 12-18 months.
RATIONALE FOR THE STABLE OUTLOOK
The stable outlook on VimpelCom's rating reflects Moody's
expectation that the company will sustainably maintain its leverage below
3.0x times on a gross-debt basis and around 2.0x
on a net-debt basis, and RCF/Debt above 20%.
The agency expects that VimpelCom 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 to below
2.0x and strengthening of coverage metrics so that they are consistent
with an upper Ba or a lower Baa rating categories 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 its operating and financial
profile measured by (1) a sustainable increase in leverage measured by
gross debt/EBITDA above 3.0x, and (2) a weakening of RCF/debt
to below 20% 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 Global Telecommunications
Industry published in December 2010. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
The local market analyst for GTH Finance B.V. ratings is
Julien Haddad, Analyst, Corporate Finance Group, Journalists
44 20 7772 5456, Subscribers 44 20 7772 5454.
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,
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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.
The person who approved GTH Finance B.V. credit ratings
is David Staples, MD-Corporate Finance, Corporate Finance
Group, Journalists 44 20 7772 5456, Subscribers 44 20 7772
5454. The person who approved VimpelCom Ltd, VIP Finance
Ireland Limited, VimpelCom PJSC and VimpelCom Holdings B.V.
credit ratings is Victoria Maisuradze, Associate Managing Director,
Corporate Finance Group, Journalists 44 20 7772 5456, Subscribers
44 20 7772 5454.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
No Related Data.
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