Moody's Believes VimpelCom's (VIP) New Financial Policy is Credit Positive Event
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Moody's Investors Service has said that it views recent updates VimpelCom Ltd (NYSE: VIP) (Ba3 stable) has made to its financial policy as credit positive for the group. The updated policy prioritises deleveraging and investment in 3G/4G mobile data network over dividend payouts. The new policy should support the group's financial metrics and competitive positions. However, any positive pressure on the rating will depend on the development of the group's financial metrics as a result of both the implementation of its new financial policy and its operating performance.
On 28 January, VimpelCom announced that it intends to (1) limit its dividend payouts to $0.035 from $0.8 per share until it deleverages to reported net debt/EBITDA of below 2.0x, and (2) focus on deleveraging and investment in the expansion of its 3G/4G mobile data network, with capital expenditure (capex) accounting for 21% of the group's revenue in 2014.
The announced policy, in and of itself, does not translate into immediate positive pressure on VimpelCom's rating. The impact on the rating will depend on the evolution of the group's financial metrics as a result of the implementation of the updated financial policy. As yet, VimpelCom has not disclosed details of whether it plans to use the cash saved on dividends for either debt reduction or financing capex, and which entities within the group will be affected.
Moody's notes that VimpelCom's Ba3 corporate family rating (CFR) continues to reflect the company's ongoing reliance upon its Russian and Ukrainian subsidiaries consolidated under VimpelCom Holdings B.V., which continue to determine VimpelCom's financial flexibility. As such, Moody's primarily bases its assessment of VimpelCom's business and financial profile on VimpelCom Holdings.
Moody's estimates that as of year-end 2013 VimpelCom Holdings' leverage stood at around 2.4x adjusted debt/EBITDA, materially exceeding 2.0x, which is the threshold for an upgrade of VimpelCom's Ba3 CFR. Should VimpelCom apply all cash saved on dividends in 2014 to repay debt consolidated at the VimpelCom Holdings' level (as opposed to repaying debt at VimpelCom's highly leveraged business in Italy consolidated under Wind Telecom S.p.A.), the company's leverage would not necessarily decline below 2.0x. This is because deleveraging will also depend on the company's ability to preserve its historically strong operating performance in the highly competitive core Russian market, which is yet to be evidenced.
The rating agency recognises the long-term positive effect of VimpelCom's investment in the expansion of its 3G/4G networks, as operations in the lucrative mobile data segment are likely to be the main driver for the group's revenues growth in the medium term. The scale and quality of those networks are likely to be one of the key factors for the group in maintaining its extensive subscriber base, particularly in Russia. However, it will take time for increased investment in the 3G/4G networks to translate into meaningful revenues and earnings growth.
On 28 January, VimpelCom announced that it intends to (1) limit its dividend payouts to $0.035 from $0.8 per share until it deleverages to reported net debt/EBITDA of below 2.0x, and (2) focus on deleveraging and investment in the expansion of its 3G/4G mobile data network, with capital expenditure (capex) accounting for 21% of the group's revenue in 2014.
The announced policy, in and of itself, does not translate into immediate positive pressure on VimpelCom's rating. The impact on the rating will depend on the evolution of the group's financial metrics as a result of the implementation of the updated financial policy. As yet, VimpelCom has not disclosed details of whether it plans to use the cash saved on dividends for either debt reduction or financing capex, and which entities within the group will be affected.
Moody's notes that VimpelCom's Ba3 corporate family rating (CFR) continues to reflect the company's ongoing reliance upon its Russian and Ukrainian subsidiaries consolidated under VimpelCom Holdings B.V., which continue to determine VimpelCom's financial flexibility. As such, Moody's primarily bases its assessment of VimpelCom's business and financial profile on VimpelCom Holdings.
Moody's estimates that as of year-end 2013 VimpelCom Holdings' leverage stood at around 2.4x adjusted debt/EBITDA, materially exceeding 2.0x, which is the threshold for an upgrade of VimpelCom's Ba3 CFR. Should VimpelCom apply all cash saved on dividends in 2014 to repay debt consolidated at the VimpelCom Holdings' level (as opposed to repaying debt at VimpelCom's highly leveraged business in Italy consolidated under Wind Telecom S.p.A.), the company's leverage would not necessarily decline below 2.0x. This is because deleveraging will also depend on the company's ability to preserve its historically strong operating performance in the highly competitive core Russian market, which is yet to be evidenced.
The rating agency recognises the long-term positive effect of VimpelCom's investment in the expansion of its 3G/4G networks, as operations in the lucrative mobile data segment are likely to be the main driver for the group's revenues growth in the medium term. The scale and quality of those networks are likely to be one of the key factors for the group in maintaining its extensive subscriber base, particularly in Russia. However, it will take time for increased investment in the 3G/4G networks to translate into meaningful revenues and earnings growth.
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