S&P raises MTS rating to BB+ following parent Sistema rating upgrade

MOSCOW, Aug 29 (PRIME) -- International rating agency S&P Global Ratings (S&P) has revised up rating of Russia’s major mobile operator MTS to BB+ from BB with a Stable outlook following improvement of the rating of the operator’s main holder, Sistema, the agency said on Thursday in a statement.

“We assess MTS’ stand-alone credit profile (SACP) at bbb-, three notches higher than the rating on Sistema. Our SACP on MTS is supported by the company’s No.1 position in the very competitive Russian and Ukrainian mobile telecom markets and the company’s strong credit ratios with adjusted debt to EBITDA of about 2.0x as of June 30,” S&P said.

“We view MTS as an insulated subsidiary of Sistema, and, as a result, we rate MTS above Sistema. This is because we believe that MTS’ operating and financial performance are independent from those of Sistema. At the same time, we cap our rating on MTS at two notches above that on Sistema.

“This cap reflects our view of MTS’ relative level of insulation from Sistema, as MTS lacks features such as legislative restrictions, including active regulatory oversight, or alternatively, a publicly stated policy by a regulator or appropriate legislative body aimed at protecting the credit quality of the company. In addition, some of MTS’ shares are pledged to secure Sistema’s long-term loan from Sberbank.”

S&P also said that if Sistema’s control over MTS were to lessen, it could have a positive effect on MTS’ rating on MTS. “But this is not our base case, because we understand that Sistema does not plan to sell any MTS shares,” the agency said.

“We could upgrade MTS if we upgraded Sistema, or if Sistema reduces its control over MTS and the rating on MTS is no longer constrained by Sistema’s lower credit quality.”

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