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S&P revises outlook on Russia's VimpleCom to positive

August 11, 2015, 20:38 UTC+3 LONDON
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LONDON, August 11. /TASS/. Standard & Poor's Ratings Services revised its outlook on The Netherlands-headquartered global telecommunications operator VimpelCom Ltd. to positive from stable, the agency said in a press release. The "BB" long-term foreign and local currency corporate credit ratings were affirmed, S&P reported.

The action follows the company’s announcement on August 7, 2015 about the agreement to merge its fully owned Italian subsidiary Wind Telecomunicazioni S.p.A. with CK Hutchison's subsidiary 3 Italia S.p.A., through a 50/50 joint venture between VimpelCom and Hutchison, the report said.

"The outlook revision primarily reflects the moderate improvement we expect in VimpelCom's credit metrics post-closing. In our view, based on its deconsolidation of the Wind stake and its 50% ownership in the new merged entity, VimpelCom's credit measures should strengthen, given Wind's higher leverage relative to that at VimpelCom, excluding Wind. Moreover, we also anticipate that Wind's leverage will diminish after the merger because 3 Italia SpA is less leveraged, and the combined entity should unlock cost synergies over time," S&P experts said.

At the same time, according to the report, the transaction's positive financial implications will likely be somewhat tempered by a drop in the contribution of the Italian market to VimpelCom's total revenues and EBITDA. The deal will also reduce VimpelCom's geographic diversity and increase its exposure to markets facing higher country risks and challenging conditions currently, such as Russia and Ukraine, S&P said.

"We anticipate under our base case that VimpelCom's total revenues and EBITDA will likely contract by about 15%-20% year-on-year in 2015, mainly owing to negative currency effects, as well as generally sluggish conditions in Russia in the context of its economic slowdown and the weak Russian ruble," the report said.

"We continue to assess VimpelCom's business risk profile as "satisfactory," albeit in the lower end of the category, supported by its well-established operations in its key markets in Russia and Italy and its diverse portfolio of assets, and solid profitability. These strengths are partly offset by industry risks, exacerbated by regulation and competition (in Russia, VimpelCom's market share is well below that of leader MegaFon), and overall high country risks faced in the group's geographic portfolio," S&P said.

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