OREANDA-NEWS. March 23, 2011. Ukrtelecom has announced a tender to select banks for a 5-year USD 400mn loan facility, the company reported Mar 22.

Millennium Capital deems the news is NEGATIVE for Ukrtelecom. In addition to a rather precipitate decision of the new UTLM owner to borrow, we are also astonished with the amount of funds the company plans to raise given that the planned USD 400mn constitutes a solid 31% of the company’s balance sheet in FY11. Moreover, we are concerned as to where those funds will be directed taken into account the fact that Ukrtelecom has recently managed to restructure its principal debt of USD 222mn now maturing in FY12, whilst the company’s capex plans are announced at only USD  126mn in FY11 vs ample OCF of USD  163mn for the same year. Potentially, some funds may be directed towards the construction of the special communications entity with its subsequent spin-off but this obviously will not require much cash. There is, however, a possibility that the management simply tries to draw cheap funds from the state banks in advance of principal repayments in FY12. Ultimately, this borrowing will cost the company a leveraged balance sheet, whilst its core debt ratios will significantly deteriorate with D/E rising to 0.97x by end-2011 (vs our original projection of 0.46x) and ND/EBITDA surging to a rotten level of 4.0 in FY11 (vs MFKe 1.8x).