Standard & Poor's has assigned a long-term B- credit rating to the company's local and foreign currency along with a Stable outlook.  This is the same rating which was awarded to Vimpelcom, Mosenergo and Tatneft. 

The official press release by Standard & Poor's runs as follows:

London, 17 December 2001 -- Standard & Poor's today assigned a long-term B- credit rating for the company's local and foreign currency along with a Stable outlook. 

The rating reflects the following factors:  

·         The monopoly position of Uralsvyazinform on the regional market;

·         The company's mobile business development;

·         A sufficiently advanced technological level of its network;

·         The company's ability to roll out value-added services;

·         The impact of sustained capital investments on the company's financial standing;

·         The unfavorable regulatory climate.

OJSC Uralsvyazinform is the main telephone operator in the Perm region, located in Urals area of Russia.  B/Positive/B).  According to the company's financial statements as of December 31, 2000 the turnover of Uralsvyazinform stood at Rub 1.7 bn ($61 mn).

As a monopoly carrier, Uralsvyazinform controls the switching capacity of the general access fixed line regional network, as well as a considerable portion of local and long-distance traffic, 87% and 98% respectively.  Uralsvyazinform is one of the few operators which fully owns the mobile business in its area.  The company expects to see a 49% rise in revenues from its mobile business, which would translate into 26.5% of its aggregate turnover.  Profit margins from long-distance and fixed line traffic also represent important factors which helped push up the rating.

The management's long-term strategy envisages an investment programme aimed at enhancing infrastructure, which would make the company's network more advanced than peers in other Russian regions.  The digitalization rate is 58% which is nearly two times higher than in the other regions (an average of 28%), while per-minute billing has been phased in nearly everywhere.  The current network also allows the company to provide value-added services. 

In order to finance its network upgrade programme the company enjoys credits from its suppliers, which means a significant currency risk and a 3.1-fold ratio between net liabilities and the EBITDA index (earnings before interest, taxes, deductions and amortisation) in 2000.  Any further growth in these indices would have had a negative impact on the rating, despite improved profit margins and control over cash flows.  The company's extensive short-term liabilities also create risks associated with the renewal of loans.

One of the main structural problems in the industry is that of cross-subsidization of local traffic on the basis of long-distance traffic.  In spite of the fact that permission has been granted to raise tariffs, it is still not possible to achieve break even on local traffic, while rebalancing is still far from being completed.

The current ratings of Uralsvyazinform are based on independent assessments of the company's financial status and do not reflect synergies anticipated from the upcoming mega-regional merger, in which Uralsvyazinform is to play a leading role as the core company.  A re-rating is possible once the merger is complete. 

Outlook: Stable

OJSC Uralsvyazinform is a company with a seasoned management and diversified sources of income, which to differing extents are exposed to regulation.  The company's profit margins and control over cash flows are rather weak and leave the company little room for maneuvering should business activity be eroded by competition, inefficiency or imbalances resulting from business and financial strategy.