S&P downgrades Southern Telecoms Co.'s rating to 'CCC+/ruBB' on increased financial risk

February 2, 2005

1 Min Read

MOSCOW -- Standard & Poor's Ratings Services said today it lowered its long-term corporate credit rating on Russia-based regional incumbent telecommunications operator Southern Telecommunications Co. (OJSC) (STC) to 'CCC+' from 'B-', as a result of the company's significantly increased exposure to financial risk. The outlook is negative.

At the same time, Standard & Poor's lowered its Russia national scale and senior unsecured debt ratings on the company to 'ruBB' from 'ruBBB-'.

"The downgrade reflects STC's poor liquidity and deteriorating financial profile, marked by aggressive investments and rapid accumulation of debt," said Standard & Poor's credit analyst Lorenzo Sliusarev.

In addition, the ratings are constrained by the company's exposure to a currently unbalanced tariff structure, its lack of business diversification, and the relatively weak economics of its franchise area. These risks are somewhat moderated by STC's solid market position, its improving operations, progress in the regulation of the company's tariffs, and growth potential.

Standard & Poor's considers that the company's significantly strained liquidity and weakened financial profile makes it highly dependent on availability of sufficient external sources for refinancing, which is subject to uncertainty.

"Unless management implements effective measures to prevent the company's financial profile from deteriorating further, STC's ability to manage its near-term liquidity and refinance its upcoming financial obligations could become even more uncertain," added Mr. Sliusarev.

Although the company is expected to make drastic reductions to its capital expenditure program and focus on cost cutting and profitability enhancements, implementation of these measures is also uncertain and will take time to positively affect the company's financial standing.

Standard & Poor’s

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