The 'A' rating indicates that MEGAKOM LLC qualifies as a highly creditworthy borrower. The risk of a failure to meet obligations in time is low, the full or partial debt restructuring risk is minimal.

MEGAKOM LLC is principally engaged in the operation and leasing of office premises and other real estate in Moscow city. At the beginning of the third quarter of 2014, MEGAKOM LLC's assets reached RUB 1,240.8 million.

We regard growing sales revenue and sales profits, the higher return on sales and return on assets, the faster general capital turnover ratio, the high and improving interest coverage ratio and the comfortable debt profile in terms of maturity as the main positive rating drivers for MEGAKOM LLC.

The sales revenue of MEGAKOM LLC has been on a steady growth trend in recent years. In particular, it increased almost 6.5 times in 2012, by almost 33% in 2013, by more than 27% for the first half of 2014 (against the same period in 2013) reaching RUB 128.8 million. Sales profit went up 17.1% in the fourth quarter of 2013, 12.6% in the first quarter of 2014, and further improved by 30.9% in the second quarter, reaching RUB 101.2 million for the half-year period.

This year, MEGAKOM LLC substantially improved some of its profitability metrics. In particular, its return on sales ratio improved from 61.4% in 2013 to 69% in the first quarter of 2014 and to 88% in the second quarter. Return on assets also increased from 58.7% in the calendar year 2013 to 69% for the 12-month period ending on July 1, 2014.

In the period under review, MEGAKOM LLC also achieved a major positive change in the general capital turnover. From 0.02 in 2011, the respective turnover ratio increased to 0.11 in 2012, 0.16 in 2013. For the 12-month period ending on July 1, 2014, the general capital turnover ratio increased to 0.18.

MEGAKOM's quarterly interest coverage ratio was 1.3057 in the fourth quarter of 2013. This year, it increased to 1.5930 in the first quarter and reached 2.1164 in the second quarter. The robust interest coverage reflects the Company's obvious ability to pay the current debt interest without much strain.

There is every reason to recognize MEGAKOM's debt profile in terms of maturity as fairly good. A long-term loan taken from the Bank of Moscow and ultimately maturing at the end of 2018 accounts for 96.5% of MEGAKOM's loan debt. Therefore, the quarterly debt servicing coverage ratios (factoring in both interest and principal repayment) do not differ much from interest coverage ratios: the quarterly debt servicing coverage ratio was 1.3471 in the first quarter, 1.7565 in the second quarter of 2014. This means that MEGAKOM LLC generates a cash flow sufficient to ensure the servicing of the current debt (including the loan principal repayment) without much strain, which is a positive argument for the credit rating.

At the same time, the heavy debt burden, the weak liquidity position and the persistent risk of shrinking demand for the office premises let on lease are working against the credit rating of MEGAKOM LLC.

The loan debt of MEGAKOM LLC decreased from RUB 1,644.5 million to RUB 1,600.1 million in 2013 but went up against this year reaching RUB 1,681.9 million by the end of June 2014. The ratio of loan debt to sales revenue at the beginning of the second half-year 2014 was 5.4, which we believe to be a heavy debt burden on MEGAKOM LLC in relation to the Company's current revenues and net profit.

In the first half of 2014, MEGAKOM LLC had a fairly weak liquidity position. The Company's current liquidity ratio was 1.3138, absolute liquidity ratio was 0.23864, while acid test ratio was 0.23951.

In the light of existing long-term economic development forecasts, CJSC AK&M Rating Agency tends to believe that a reduction in demand (in the wake of the general deterioration in Russia's economy) for the office premises it lets on lease could, in theory, spell some problems for MEGAKOM LLC over the forthcoming 12-month period. The probability of this scenario also constrains the credit rating.

Company name: MEGAKOM Limited liability company (MEGAKOM LLC).

This press release is based on the Statement of assignment of a credit rating to MEGAKOM LLC.

The rating, along with any information and conclusions provided in this press release, only conveys our opinion on the Company's creditworthiness and shall not be construed as a recommendation to purchase or sell securities, or to lend funds.

AK&M Rating Agency shall not be held liable 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. CJSC AK&M Rating Agency is accredited by the Ministry of Finance of the Russian Federation (order no. 452 as of September 17, 2010) and is on the Central Bank of Russia's Register of Accredited Rating Agencies.

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