Fitch puts North-West Telecom on watch

Fitch Ratings said it put Russia-based OAO North-West Telecom's B+ issuer default rating and A(rus) national long-term rating on Rating Watch evolving following the company's announcement that it will acquire 100% of Petersburg Transit Telecom for an undisclosed price.

The deal is expected to close in 2007 and will have to be approved by regulators. According to North-West Telecom, Petersburg Transit Telecom had revenues of $35 million and EBITDA of $18 million in the first half of 2006. Assuming an EBITDA multiple of 6x and little debt in the acquired entity, the price of the acquisition is likely to be below $200 million.

The agency said this acquisition makes strategic sense for North-West Telecom because the company will become the owner of the largest backbone network in the city of St. Petersburg, its largest and most affluent geographical market. At the moment, North-West Telecom critically depends on Petersburg Transit Telecom services to carry its traffic across the city as it lacks its own backbone infrastructure.

Provided that the deal price is in the range of $200 million, net debt to EBITDA is likely to rise to 1.9x from 1.5x. In Fitch's view, North-West Telecom's credit profile is strong for its rating and the rise in leverage could be accommodated within the current rating.

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