OREANDA-NEWS. November 17, 2009. International rating agency Standard & Poor’s has revised its outlook for the credit ratings of VolgaTelecom from negative to stable.  At the same time, the agency reaffirmed its national scale rating for the company at ruAА-.  A stable outlook reflects expectations that VolgaTelecom will retain its leadership position in key business segments of the telecom market and will focus on raising efficiency and generating free cash flow.

As the agency noted in its report, “the rating action reflects greater strength in VolgaTelecom’s financial profile, as shown mainly by its improved liquidity and lower financial leverage.

In September 2009 VolgaTelecom redeemed RUR 2 bln worth of its RUR 3 bln bond issue.  Earlier, the company had accumulated a free cash flow in order to redeem this large volume of debt obligations with maturity in 2009.  This resulted in a reduction of the company’s financial leverage compared with the same period last year.

The agency’s report also notes that “the company’s liquidity has improved recently”.  The agency’s analysts expect liquidity will be completely sufficient within the next 12 months  They also voiced confidence that “the company will be able to service its debt obligations without refinancing”.  The rating remains positively impacted by VolgaTelecom’s strong position in its coverage area, the generation of robust free cash flow and better diversification of revenue.

Standard & Poor's credit analysts expect VolgaTelecom to be able to manage its liquidity appropriately and refinance its short-term debt on a timely basis ahead of the upcoming maturity dates.  “The company’s free operating cash flow in 2010 and 2011 will fully cover its aggregate debt worth about RUR 4 bln, thus allowing VolgaTelecom to raise its financial flexibility”, the agency’s report points out.

In addition, VolgaTelecom’s rating is constrained by several factors, among which Standard & Poor's notes the following: the company’s dependence on the Russian capital market, deterioration of economic conditions in Russia, the high level of competition in the mobile telephony segment, and also possible risks associated with the industry’s expansion and its regulatory system.