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S&P Puts Kyivstar On Watch Pos On VimpelCom's All-Share Bid

February 15, 2006 | Cbonds

Standard & Poor’s Rating Services said today it placed its 'BB-' long-term corporate credit rating on Ukraine-based mobile telecommunications operator CJSC Kyivstar GSM on CreditWatch with positive implications. This follows the announcement of a bid for the company by Russian mobile telecommunications operator Vimpel-Communications (JSC) (VimpelCom; BB/Positive/--) for a consideration of $5 billion in common registered shares plus assumed debt.
At the same time, the 'BB-' long-term senior unsecured debt rating on the company's loan-participation notes issued by Dresdner Bank AG (A/Stable/A-1) was also placed on CreditWatch with positive implications.
"The CreditWatch placement reflects the potential for the ratings on Kyivstar to be raised by one notch if VimpelCom successfully completes the proposed all-share purchase of 100% of Kyivstar," said Standard & Poor's credit analyst Michael O'Brien.
The transaction could remove a rating constraint constituted by the potential knock-on effects related to a dispute between Kyivstar’s direct shareholders, Norway-based Telenor ASA (A-/Negative/A-2), which holds 56.52% of the company's shares, and Storm, controlled by Altimo, an affiliate of Russia-based Alfa Group, which holds 43.48%. Furthermore, the potential transaction would lead to consolidation in the Ukrainian market, enabling Kyivstar (under VimpelCom ownership) to pursue an unfettered strategy in Ukraine. A successful transaction could also result in a number of operating and financial synergies, leading to a strengthening of Kyivstar's business profile.
Nevertheless, completion of the potential transaction would not automatically lead to an upgrade. Standard & Poor’s assessment of the business environment in Ukraine would also be a key consideration. In addition, the ratings on Kyivstar remain constrained by the political, business, and regulatory risks associated with operating in Ukraine (foreign currency BB-/Stable/B; local currency BB/Stable/B), which allow for only limited-–although possible-—leeway for a rating upgrade.
The CreditWatch is likely to be resolved following completion or cancellation of the potential transaction. "Although we believe that the likelihood for the transaction to be executed as proposed is modest at this stage, we cannot rule out Kyivstar’s shareholders eventually reaching an agreement that would lead to VimpelCom assuming full control," Mr. O'Brien added.
In the event of cancellation, the ratings would likely be affirmed.
Importantly, should a revised acquisition bid include a significant cash component from VimpelCom, potential rating upside for Kyivstar would be unlikely, and a negative rating action would not be ruled out.

Company: Kievstar GSM

Full company nameKievstar GSM
Country of riskUkraine


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