The ‘A+’ rating indicates a high credit standing of the Company. Risk of a delay in meeting liabilities is insignificant.

OJSC Tele2-Saint-Petersburg is one of the backbone structural units of Tele2 Russia, the fourth largest Russian mobile operator owned since April 2013 by VTB Group which acquired it from Swedish telecommunications concern Tele2 AB assuming the target company’s debt.

The change of ownership offers ample development opportunities to the cellular discounter including qualitative changes. Most importantly, Tele2-Saint-Petersburg may be licensed to provide telecommunications services in Moscow region and get access to radio frequencies to roll out its LTE-based 4G network. To achieve the latter target, the Company would have to set up a joint venture with one of the market players licensed to use the 4G frequencies. Most of the financial and IT analysts tend to think that such a transaction is quite realistic and perfectly logical, promising powerful synergies.

As estimated by independent experts, the relative share (taking the number of subscribers) of Tele2 in the whole domestic market is about 10 percent. This percentage is much higher in the regions where the company is active. In St. Petersburg, Tele2 serves approximately 18% of subscribers staying just a little behind the Big Three Group’s operators (MTS, MegaFon and Beeline). Given that Tele2 accoutned for 40% of the total subscriber base growth in Russia in the first quarter of 2013, its further development prospects are fairly bright. A stronger position of the parent company will apparently improve the financial viability of of the holding’s separate business units including OJSC Tele2-Saint-Petersburg.

In 2012, the St-Petersburg-based company posted strong financial results backing its current credit rating. In particular, the Company’s revenue as per Russian accounting standards increased by 13.5% topping the RUB 10 billion mark for the first time. In terms of revenue growth, OJSC Tele2-Saint-Petersburg outpaced all the Big Three Group’s operators (MTS increasing its revenues by 9.7%, Beeline by 7.4%, MegaFon by 7.0%). In Q1 2013, the Company’s revenue totaled RUB 2.529 billion against RUB 2.293 billion in Q1 2012 (+10.3% year-on-year), while net profit increased by 12.7%. Of special note is that the revenue growth was mainly driven by the subscriber base expansion and general web traffic increase.

Increasing its earning power in absolute terms, the Company also improved a number of relative performance indicators. Return on sales increased from 42.3% to 45.6% (QoQ), EBITDA margin grew from 39.2% to 49.7% (YoY). We appreciate the impressive and still growing key performance indicators as one of the mainstays for the rating of OJSC Tele2-Saint-Petersburg.

The high amount of long-term financial liabilities (RUB 26 billion) arising from the issuer’s bonded loans placed in 2011-2012 is still a major risk factor for Tele2-Saint-Petersburg. As of January 1, 2013, the Company's net debt to EBITDA multiple was 5.22х, fairly close to the threshold value. At the same time, most of the borrowed capital is converted into financial investments (long-term loans) with shorter tenors and interest rates exceeding the bond coupon rates. It should also be noted that the borrower (Tele2 Financial Services AB) is simultaneously the guarantor for all the bonded loans. The above-mentioned can be regarded as positive drivers offsetting the high debt burden.

We highlight the traditionally poor liquidity positions and a strong decline in the Company’s equity capital (4.3% as of April 1, 2013) resulting from the 2011 and 2012 dividend payout as further challenges for the Company resisting a higher rating.

OJSC Tele2-Saint-Petersburg is part of Tele2 Russia, an alternative cellular service provider. The company has the licenses required for business operations in the macroregion (the Northwest Federal district). As of April 1, 2013, Tele2-Saint-Petersburg’s assets amounted to RUB 29.4 billion, equity capital totaled RUB 1.28 billion. The Company’s auditor is CJSC Deloitte & Touche CIS.

This press release is based on the statement of assigning a credit rating to OJSC Tele2-Saint-Petersburg.

The credit rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company’s credit standing and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities.

AK&M Rating Agency will not incur any responsibility for any interpretations, inferences and consequences related to the application of results of the rating estimation procedure by any third parties.

AK&M Rating Agency is a leading independent national rating agency engaged in rating activities since 1993.

AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010).

AK&M Ratings are recognized by the Central Bank of Russia (for providing unsecured lending facilities – Regulation 323-P), Vnesheconombank (for granting subordinated loans) and SME Bank (for its program of lending to SME businesses), RUSNANO (when selecting banks to provide cash and settlement services to project and engineering companies implementing investment projects), the MICEX (for the Corporate Bond Index / MICEX CBI and Municipal Bond Index / MICEX MBI calculation and bond listing purposes). By a resolution of Russia’s Government AK&M Ratings count for the recapitalization of banks. Besides, AK&M Rating Agency is recognized by AHML and accredited by SRO National Securities Market Association.

CJSC Analysis, Consulting and Marketing Rating Agency
ul. Gubkina 3
Moscow, Russia
www.akmrating.ru
Press release by: A.V. Khibukhin
Phone no. (495) 916-70-30, fax no.: (499) 132-69-18.