AK&M Rating Agency assigned the ‘A+’ (stable outlook) credit rating to OJSC Tele2-St. Petersburg as per the national scale. The ‘A+’ rating qualifies OJSC Tele2-St. Petersburg as a highly reliable borrower. Risk of a delay in meeting liabilities is insignificant.
One of the essential arguments for the rating score is the strong position of OJSC Tele2-St. Petersburg in the market of telecommunication services. Tele2-St. Petersburg is one of the leading operators in the market of cellular communication services of St. Petersburg, being only inferior to the Big Three Group. The company is developing and operating a radio telephone communication system, providing local and long-distance mobile communication services. The customer base of OJSC Tele2-St. Petersburg exceeds two million subscribers.
To provide cellular radiotelephone communication services in the Republic of Karelia, Vologda, Murmansk and Pskov regions, Tele2-St. Petersburg has established dedicated branches pooled on a separate balance sheet.
The mobile communication business accounts for the greatest part of the company’s incomes, and features high customer loyalty. In years to come, the current investment policy of Tele2-St. Petersburg may improve its performance in this segment. In the alternative segment market, the company is also on solid ground.
Tele2-St. Petersburg’s debt load is relatively low and was still decreasing over the three quarters 2010. Consolidated debt (credits and loans) of Tele2-St. Petersburg, according to its audited statements for three quarters 2010, decreased by 52.07% to RUB 424.6 million (for reference, the company’s liabilities decreased by 28.1% in 2009).
Today, borrowed funds are below the company’s own funds. Equity to total assets ratio is estimated at 0.10. Debt to assets ratio as of October 1, 2010 is 0.62. Debt to equity ratio as of October 1, 2010 is 0.17. Gross debt to revenue ratio of OJSC Tele2-St. Petersburg as of October 1, 2010 was 0.08.
The company’s cash flow is relatively high compared to the forthcoming payments, and things could still improve thanks to a policy of cutting down costs including capex currently pursued by the company.
There are other arguments supportive for the rating score. For three quarters 2010, the company’s obligations reduced while its equity capital and assets grew. In 2010, total amount of funds borrowed by OJSC Tele2-St. Petersburg decreased by 10% while equity capital grew by 16%, assets by 22%.
The quality of the company’s debt profile for three quarters 2010, however, is sending a negative signal, the share of short-term obligations being relatively high. As of the end of September 2010, consolidated long-term obligations accounted for 35%, and short-term credits and loans and other short-term obligations for 65%.
It will also be noted that things became worse as compared with early 2010 (when the share of the company’s short-term liabilities was 59%) resulting from the outstripping growth of short-term obligations by 84% while long-term liabilities decreased by 30%. In 2009, the company’s short-term obligations decreased by 54%, long-term liabilities shrank by 5%.
Long-term loans, the most reliable source of financing in the way of investment activity, are being gradually replaced with short-time debt load in the portfolio of OJSC Tele2-St. Petersburg, which affects the company’s financial soundness.
OJSC Tele2-St. Petersburg has gained an appreciable development momentum. The company is actively developing new types of services and expanding its sales markets. This increases the number of customers and the scope of services yielding higher cash flows. OJSC Tele2-St. Petersburg’s sales revenue for 2009 increased by approximately 40% to RUB 5,236 million For three quarters 2010, its sales revenue, despite the crisis, also increased (revenue for three quarters 2010 roughly matched the company’s earnings for the whole year 2009).
The company’s operational efficiency is proven by its high margin values. Return on assets (ROA) of OJSC Tele2-St. Petersburg for three quarters 2010 was 37.5% increasing against the result achieved the previous year (31.6%). OIBDA margin also rose from 39.06% to 39.92%.
For three quarters 2010, GP increased by 35.5%, net profit rose by 28.3%.
Over the period under review, profitability and margin values somewhat increased. A survey of the current situation in the industry indicates that profitability may continue improving in 2011.
The rating score is essentially restricted by the low liquidity. In 2009, the company’s current and absolute liquidity decreased considerably as short-term liabilities grew against the constant value of current assets. As a result, current liquidity ratio decreased to 0.6, absolute liquidity to 0.01. For three quarters 2010, current and absolute liquidity remained almost the same (0.5 and 0.05, respectively). As of October 1, 2010, short-term liabilities increased by 19.3%, current assets increased by 11.3%. The increasing share of short-term liabilities in the liability structure, along with the decreasing long-term obligations, also indicates depreciation of the company’s liquidity.
OJSC Tele2-St. Petersburg’s business activity and development strategy require heavy investments. The company’s development strategy assumes that the company strengthens its positions upgrading its capacities, introducing new technologies and acquiring new assets both in St. Petersburg and in other regions. Besides, modern telecommunication technologies are resource-intensive when implementing new projects. The high demand for financing for strategic projects may aggravate the debt burden as external financial resources are required.
OJSC Tele2-St. Petersburg is one of the leading operators of the cellular communication market of St. Petersburg. The company is developing and operating a radio telephone communication system, providing local and long-distance mobile communication services.
OJSC Tele2-St. Petersburg was established on November 16, 1992.
100% of shares of OJSC Tele2-St. Petersburg belong to Tele2 RussiaHoldingAB.
Number of shares: 928.
Tele2 is active in Sweden, Lithuania, Latvia, Estonia, Luxembourg.

This press release is based on the statement of assigning a credit quality rating to OJSC Tele2-St. Petersburg.
The rating score, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's reliability and shall not be considered as advice on the purchase and sale of securities or the provision of loan facilities to the Company.
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.
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Press release by: A.Y. Zolotokopov
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