OREANDA-NEWS. October 20, 2009. Magnit approved raising loans from Sberbank, VTB and BSGV in the total amount of RUB14bn. Sberbank will lend RUB10.5bn for 3 years, VTB - RUB2.5bn for 2 years and BSGV - RUB1bn for 6 months, at borrowing rates not to exceed 20-35%. The actual interest rates might be as low as 14-16%, reported the press-centre of OTKRITIE FC.

View: We view this news positive, and point out that this financing suggests that Magnit might not hold an SPO. Given its low leverage, Magnit may be able to afford raising sufficient finances without significantly increasing its debt/EBITDA ratio, which on our estimates could amount to 1.9x in 2009 and 1.5x in 2010. Due to the additional RUB14bn debt, interest expenses could increase almost two-fold and impact net margins, which could then dip to 3.4% in 2009 and 4.2% in 2010 (vs our previous estimates 4.6% and 5.0%, respectively). The higher debt might reduce ROIC by an average 2pts to 16-17% in 2009-10E. Nonetheless, the company will use the loans to finance current expansion within the discount and hypermarket formats and to restructure its existing debt portfolio.

Valuation & action: MGNT GDRs trade at a 2009E EV/EBITDA of 12.5x, which is at par with EM peers. We reiterate our HOLD rating for the stock.