The 'A+' rating indicates that OJSC Tele2 - Saint-Petersburg has a very high creditworthiness. The risk of a failure to meet obligations in time is insignificant. The rating assignment was based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets rev. January 23, 2014.

OJSC Tele2 - Saint-Petersburg is one of the backbone business units of Tele2 Russia, Russia's fourth largest mobile operator in terms of the subscriber base. The company's sole shareholder is T2 RTK Holding LLC.

OJSC Tele2 - Saint-Petersburg is licensed to operate in Russia's Northwest Federal District. The operator control approximately 17% of the mobile telephony market in St. Petersburg and Leningrad region.

The positive rating drivers for the Company include its steady position in the market of telecommunication services; profitable operations, comfortable current liquidity and high absolute liquidity, the parent company's financial sustainability and sufficiency of financial capacities to service its current loan debt over the forthcoming 12-month period.

Over the period since the end of 2013 to the start of Q2 2015, the Company's subscriber base increased by 31,398 subscribers (net). By the start of Q2 2015, the company's subscriber base increased by 1% against the end of 2013 to 3,302,584. Therefore, Tele2 - Saint-Petersburg's position in the market of telecom services can be regarded as steady.

OJSC Tele2 - Saint-Petersburg activity is profitable, with comfortable return ratios. In Q1 2015, the Company's EBITDA (Earnings before Interest, Taxation, Depreciation & Amortisation) increased more than 1.8 times year-on-year to more than RUB 1.1 billion. Net profit of Tele2 - Saint-Petersburg for Q1 2015 almost reached RUB 237 million against a net loss of more than RUB 11 million in the first quarter of 2015. In 2014, return on sales stayed flat at just over 37%; in the opening quarter of 2015, the ROA increased from 3.9% to 4.8% while net profit margin grew from 9% to 11.3%.

For the past year, OJSC Tele2 - Saint-Petersburg has dramatically improved its liquidity position. In particular, its current liquidity ratio reached 1.63 in the second quarter of 2015 against 0.09 at the start of 2014, the absolute liquidity ratio improved from 0.02 to 1.56 over the same period. These major liquidity improvements were caused by an increase in short-term financial investments. As a result, OJSC Tele2 - Saint-Petersburg has currently achieved a fairly high level of liquidity, which contributes to its credit rating.

T2 RTK Holding LLC, the parent company, appears to have a robust financial position. Over the past year, its authorized capital increased almost twice, total equity capital had exceeded RUB 95 billion by the beginning of Q2 2015, an impressive result given that the parent company's equity was negative at the start of 2014. Revenue of T2 RTK Holding LLC for 2014 grew by 33.7%, assets increased more than three times. AK&M Rating Agency has rated the parent company 'A+' on the national scale, with a stable outlook. The parent company's financial stability is a positive signal for the credit rating of OJSC Tele2 - Saint-Petersburg.

The Company's interest coverage ratio remains at an acceptable level, an evidence of the Company's ability to serve current interest and coupon payments on its borrowings. In the first quarter of 2015, this ratio improved from 1.55 to 1.68.

The amount of Tele2 - Saint-Petersburg's compulsory payments to service its loan debt for the forthcoming 12-month period is estimated at RUB 6,844 million. This amount includes the repayment of the loan from JSB Rossiya (including the interest payable on this loan) and coupon payments on four bonded loans maturing in 2021-2022. That said, the amount of temporarily surplus funds in short-term financial investments alone (as of April 1, 2015, the last reporting date) reached RUB 23,185 million, exceeding the long-term debt servicing obligations for the forthcoming 12-month period more than three times. Furthermore, OJSC Tele2 - Saint-Petersburg intends to repay the bonds before maturity by the end of H1 2016, which we recognize as a powerful positive rating driver for the Company. 

AK&M Rating Agency regards the shrinking revenue, the high debt burden, the short-term debt growth and the worse debt structure are the risk factors for the rated Company's creditworthiness.

In the past 5-year period, OJSC Tele2 - Saint-Petersburg earned the highest sales revenue in 2013 (RUB 10,721 million). Since then, the Company's revenue has been slowly decreasing (-2.3% in 2014 against 2013, -2% in Q1 2015 against Q1 2014). We regard the shrinking revenue as an evidence of the Company's adaptation to the economic crisis in Russia. 

The heavy loan debt of OJSC Tele2 - Saint-Petersburg (RUB 24.6 billion) is still an essential risk factor for the Company. In the period under review, the Company's debt ratio (net debt / EBITDA) grew steadily from 0.14 in 2010 to 6.24 at the start of Q2 2015.

The Company's short-term loan debt has been growing since 2013, which also constrains its credit rating. At the start of Q2 2015, the short-term debt reached 47% of its total loan debt, indicating a substantial deterioration of the debt structure.

OJSC Tele2 - Saint-Petersburg is a major and fast-paced provider of mobile telephony services, one of the backbone business units of Tele2 Russia, Russia's fourth largest mobile operator.

As of April 1, 2015, the Company's assets totaled RUB 31.9 billion, equity capital amounted to RUB 3.6 billion. The Company's auditor is OOO Ernst & Young.

AK&M Rating Agency assigned a credit rating to OJSC Tele2 - Saint-Petersburg for the first time on March 25, 2011. The last rating action in relation to the Company was taken on July 23, 2014. All rating action announcements are available on the akmrating.ru website.

The rating is valid until August 2016. AK&M Rating Agency may revise the rating and/or the outlook during this period if circumstances fundamentally influencing the Company's creditworthiness are revealed.

For estimation purposes, we completely rely on the reliability of information provided by the Company. The rationale for AK&M Rating Agency's judgment on the rating may include information acquired from other sources we deem to be reliable; however, the agency does not check the input data exhaustively and disclaims all responsibility for their possible errors.

The rating assignment was based on the Credit Rating Methodology for Corporates (Issuers) and Financial Assets rev. January 23, 2014.

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.

CJSC 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.

CJSC AK&M Rating Agency

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www.akmrating.ru

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