OREANDA-NEWS. On 28 April 2009 was announced, that Fitch Ratings upgraded Russia-based OAO CenterTelecom’s (CT) ratings to Long-term Issuer Default (IDR) B+ from B and National Long-term A(rus) from BBB(rus). The National senior unsecured rating was upgraded to A(rus) from BBB(rus). Its Short-term IDR was affirmed at B.

“The fixed-line telecom business is likely to demonstrate strong resilience in the downturn which will support CT’s financial performance. Although refinancing risks remain a concern, the company is planning dramatic capex cuts and operating expenditure savings in 2009, which will boost free cash flow generation and help it manage any debt redemption calls,” says Nikolay Lukashevich, Senior Director in Fitch’s European TMT team.

In light of tight credit conditions, the company is cutting capex in 2009, and potentially keeping a tight control on it over the medium term with an aim to boost free cash flow generation. Prior high investments in the network and completion of the universal telecoms service (UTS) programme at end-2008 have allowed CT to be flexible on capex for at least two years, without negatively impacting growth prospects or competitiveness.

However, Fitch remains concerned with CT’s refinancing and liquidity risks, although these risks are mitigated by a low and declining leverage (with an estimated net debt/EBITDA at slightly above 1.7x at end-2008) and strong free cash flow generation in 2009 and possibly in 2010.

The ratings also reflect CT’s dominant position as a regional incumbent fixed-line telecom operator with a diversified and stable subscriber base and control over the last-mile infrastructure. With competition primarily driven by the long-term transition to mobile technology from the fixed-line, the so far mild pressure from fixed-to-mobile substitution in the voice segment has been compensated by the company’s rapidly rising broadband market share and customer base. Fitch upgrades CenterTelecom to B+, outlook stable.