Moody's upgrades VimpelCom ratings on back of confidence-boosting Italy deal

VimpelCom’s pending deal to merge its Wind Italy business with CK Hutchison’s Three Italia has given Moody's Investors Service the confidence to upgrade the Netherlands-headquartered operator’s credit ratings.

The investors business said it is upgrading VimpelCom’s corporate family rating (CFR) from Ba3 to Ba2, the operator’s probability of default rating (PDR) from Ba3-PD to Ba2-PD, its long-term issuer ratings from Ba3 to Ba2 and the senior unsecured ratings of guaranteed debts issued by VIP Finance Ireland and VimpelCom Holdings from Ba3 (LGD 3) to Ba2.

In an announcement, Moody’s explained that it has renewed confidence in VimpelCom following the company’s agreement to forge a 50-50 joint venture in Italy with CK Hutchison. The deal overcame its final regulatory hurdle in late October when the Ministero dello Sviluppo Economico -- Italy’s economic development ministry -- approved the merger. European Commission regulators gave their approval to the deal in September.

Moody’s said the merger means that the “financial and operational risks” relating to VimpelCom’s ownership of Wind “have substantially subsided” for the Netherlands-headquartered operator. Previous concerns related to the fact that Wind is “a highly leveraged telecommunications asset” the investor’s service explained.

The investment company noted that it “maintains a view that deconsolidation of Wind’s debt does not fully relieve VimpelCom’s credit profile of all contingent liabilities associated with high levels of Wind’s indebtedness”. However, it explained that it “considers such risks largely mitigated by the partnership with a strong strategic investor such as Hutchison.”

Moody’s noted that the basis of its stable outlook for VimpelCom is an expectation that the operator will maintain its leverage “below 3.0x on a gross-debt basis and around 2.0x on a net-debt basis”. The agency also noted that it “expects that VimpelCom will maintain a robust liquidity profile and address its refinancing needs in a timely fashion.”

Telenor recently revealed that its 33 per cent stake in VimpelCom was a factor in a hefty drop in net income during the third quarter, as the Norwegian operator continued to book impairment costs relating to its holding. Telenor is seeking to sell its share in VimpelCom.