Standard & Poor’s Ratings Services has assigned its ‘ruA-‘ Russian national scale rating to Russia-based telecommunications services provider JSC VolgaTelecom (VolgaTelecom; global scale rating B/Stable/–).

At the same time, Standard & Poor’s assigned its ‘ruA-‘ debt rating to VolgaTelecom’s Russian Rb1bn (US$32mn) senior unsecured bond issue due February 2006.

“Following the bond issue in February 2003, VolgaTelecom’s leverage remained relatively low,” says Standard & Poor’s credit analyst Pavel Kochanov.

As a part of the company’s strategy to consolidate mobile assets in the Volga region, proceeds from the bond issue have been used to increase VolgaTelecom’s stake in the leading local mobile operator JSC Nizhegorodskaya Sotovaya Svyaz (NSS) which has a market share of 52% in the city of Nizhny Novgorod to 100% from 50%.

Given increased competition from the three large national mobile operators, and VolgaTelecom’s need to establish its position in other cities of the Volga region through consolidation of dispersed mobile assets, the company’s business risk, in terms of mobile activities, is high. NSS still benefits, however, from fast subscriber growth and cost advantages related to both favourable terms of interconnection and collocation of equipment and offices with VolgaTelecom’s fixed-line business.

The ratings are supported by VolgaTelecom’s:


  • Dominant position in the
  • Volga region telephony market
  • Prudent financial policies and fair performance
  • Above-average standard of network infrastructure for Russia
  • Ability to largely fund capital expenditure with internally generated cash

The ratings are constrained by:


    • Regulatory control of tariffs affecting core revenue streams


    • Risks involved in consolidating the operations of 11 newly united units and the continuing need for capital expenditure to upgrade and modernise network infrastructure


  • Increasing competition for more profitable, value-added services

“The stable outlook on VolgaTelecom assumes that the company will continue its conservative debt policy and that investment in the development of the highly competitive mobile business will not significantly increase the company’s debt,” adds Kochanov.

Standard & Poor’s also expects that VolgaTelecom will increase its share of unregulated revenues and sustain its dominant position in the fixed-line telecoms business in the Volga region.