Moody's bullish on new VimpelCom financial strategy, but maintains rating

Moody's Investors Service has no plans to upgrade VimpelCom's credit rating, despite stating that an updated financial strategy from the operator is a credit positive move.

The ratings agency applauded the company's financial policy, announced on Jan. 28, noting that the plans should sustain the group's financial metrics and competitive positions. However, Moody's stopped short of changing VimpelCom's Ba3 stable rating, noting that the group, which is headquartered in Amsterdam, must first show the new financial strategy is bearing fruit before it considers an upgrade.

Moody's said VimpelCom's rating reflects "the company's ongoing reliance upon its Russian and Ukrainian subsidiaries consolidated under VimpelCom Holdings", which "continue to determine VimpelCom's financial flexibility".

VimpelCom last week announced it would not pay a dividend for 2013, and will hold future payments at $0.0035 per share until it achieves a group net debt to EBITDA ratio of under 2 times. The operator forecasts the ratio will be around 2.3 times by end-2014, and is targeting stable revenues and EBITDA for the year.

The dividend restriction forms part of a plan to boost the group's net cash by increasing mobile data revenues, capitalising on mobile financial services, and growing partnerships with over-the-top (OTT) players. The operator also plans to improve customer experience with "smart" bundle prices, implement cost efficiency programmes throughout the group, and increase network sharing deals to boost capital efficiency.

In a company statement revealing the new strategy, CEO Jo Lunder said the company is focussed on "creating long-term value by investing in future growth".

VimpelCom has "strong positions in all of our markets, and we see future growth potential, particularly across our emerging markets portfolio," Lunder added.

Moody's said VimpelCom's plan to invest in 3G and LTE networks will have a positive impact in the long term, "as operations in the lucrative mobile data segment are likely to be the main driver for the group's revenues growth".

The ratings agency added that improved mobile data services are likely to be "one of the key factors for the group in maintaining its extensive subscriber base, particularly in Russia".

VimpelCom's subscriber base grew 5 per cent year-on-year to 219 million in the third quarter of 2013, although net income fell 53 per cent year-on-year to $255 million (€188 million) despite a marginal 1 per cent decline in revenue. Net income in the nine months to end-September fell 8 per cent to $1.2 billion.

The operator is due to announce fourth quarter and full year results on March 6.

For more:
- see the Moody's release
- see VimpelCom's strategy update
- see VimpelCom's third quarter results

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