Moody’s places MegaFon’s ratings under review for downgrade

MOSCOW, Jul 19 (PRIME) -- Moody’s Investors Service has placed under review for downgrade the Ba1 corporate family rating and the Ba1-PD probability of default rating of big Russian mobile operator MegaFon, the ratings agency said on Thursday.

The rating action follows the announcement on Monday by MegaFon Investments (Cyprus) Ltd. (MICL), a wholly owned subsidiary of MegaFon, of a tender offer to purchase for cash up to 128,950,036 of ordinary shares listed on the Moscow Exchange and the global depositary receipts (GDRs) listed on the London Stock Exchange (LSE), representing in total 20.8% of the company’s issued and outstanding shares.

The buy-back is part of the approved program to terminate the listing of GDRs on the LSE and materially reduce the free float on the Moscow Exchange. If successful, it will result in the company becoming fully private. The tender offer is expected to expire on August 22 with the announcement on the results on or about August 23.

The rating action is primarily driven by the anticipated increase in leverage as a result of the transaction, which is likely to lead to a credit profile no longer commensurate with the current ratings’ positioning at Ba1 with a positive outlook. The delisting will also elevate risks related to the potential changes in MegaFon’s corporate governance, although no such intention was communicated by the company, and the associated shift towards a more aggressive financial policy under its new business strategy.

As part of the review, Moody’s will consider the impact of the proposed buy-back on MegaFon’s business and financial risk profile. We will also review the impact of other potential corporate actions and initiatives mentioned above on MegaFon’s longer term credit and operational profile to evaluate whether the anticipated deviations can still be accommodated within the Ba1 rating.

Moody’s will aim to close the review within the next three months.

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