Daily analyst comments
S&P downgrades Uralsvyazinform’s credit rating
23.06.09 10:34
The news that Uralsvyazinform’s credit rating has been downgraded from BB- to B+ is unlikely to have any significant impact on URSI stock valuations: though large, the operator’s debts do not constitute any major threat to its cash flow.
On June 22, Standard & Poor’s downgraded its long-term corporate credit rating on Uralsvyazinform (RTS: URSI, URSIP) from BB- to B+ with a stable outlook.
S&P has noted Uralsvyazinform’s aggressive approach to liquidity management. Particularly, in 1Q 2009, the company redeemed bonds worth RUB 3 billion using a credit line issued for a period of 12 months. In 4Q 2009 and 1Q 2010, URSI is to redeem bonds worth a further RUB 7.8 billion, but the company has not yet secured financing to service these liabilities.
In our opinion, this news is unlikely to have any major impact on URSI stock valuations. From a fundamental standpoint, we cannot say that the operator is now falling on hard times, although the company’s debt is indeed large, with a 2009 Net Debt/EBITDA ratio of 2, compared with the sector average of 1.7, which may pose certain risks to its financial stability. Strictly speaking, investors have been aware of the company’s huge debts, but this has been easily offset by the operator’s large cash flow and robust margins.
We reiterate a BUY rating on both types of Uralsvyazinform securities with a target price of USD 0.029 per common share and USD 0.021 per preferred share.