Russia's MTS happy with current debt profile: CEO

DAVOS, Switzerland (Reuters) - MTS MBT.N, Russia's largest mobile phone operator, is comfortable with its current burden of gross debt at 1.8 times OIBDA and has no plans to change it significantly in 2010, the firm's CEO told Reuters.

“We are not planning to raise it (debt burden) above two (times OIBDA) but are not planning to cut it either,” Mikhail Shamolin said on the sidelines of the World Economic Forum in Switzerland.

“We need to use our balance sheet’s potential to invest,” he added. Shamolin said the company planned capital expenditure at 20 percent of sales in 2010, lower than a previously announced guidance of 22-25 percent.

“On the whole we have a very good cash position and we do not need new debt to finance this investment,” Shamolin said. MTS secured about $1.8 billion in “vendor financing” in the second half of 2009.

Shamolin said there was no decision yet on how the company is going to refinance its two Eurobond tranches for a total of about $2 billion. He said the company could issue new Eurobonds, take new loans or use cash. All options were open.

Shamolin said the company was not yet ready to give any guidance for 2010 due to low visibility in the current economic conditions. He said the current debt profile worked as long as the rouble stood within a corridor of 30-33 to the dollar.

Shamolin said traditional voice services, which account for about 80 percent of MTS’ revenue, will drive MTS growth in the coming year as the economy is recovering from the crisis.

“If there is an economic recovery, voice traffic will grow. It stagnated last year and we believe there is a potential for growth,” Shamolin said, noting that this potential depended on the economic situation and psychological expectations.

New-York listed MTS reports results in dollars and collects revenue in roubles, making the firm an ideal bet on the rouble’s strength. “The stability of the national currency for us is a very important factor in decision-making,” Shamolin said.

The company, like many other Russian firms, borrowed aggressively abroad in pre-crisis years, taking advantage of the strong rouble and low global interest rates. Only 40 percent of its debt is now denominated in foreign currency.

Shamolin said the debt servicing currency risks were unhedged. “Hedging is very expensive now. So the best hedge is having part of the debt denominated in roubles. We are keeping 60 to 40 ratio and we are comfortable with it.”

He said the difference between external and domestic debt servicing for MTS currently made up 9 percentage points.

Shamolin said the company will for the time being treat foreign acquisitions with caution, adding that the company has not yet found appropriate acquisition opportunities.

He said there were no plans to acquire Indian operator Sistema Shyam TeleServices from MTS' parent company Sistema SSAq.L.

“Our position is very simple when the Indian business will stand on its feet and will match risk and profitability requirements accepted by MTS we will be ready to consider the acquisition. We are not considering it now.”

Shamolin confirmed the intention to fully integrate fixed-line operator Comstar into MTS but said it was still unclear when it may be done.

“Minorities’ buyout is very expensive, it will require a diversion of our cash flows. The question is whether to do it now or later, taking into account other priorities for investment. There is no decision yet.”

Writing by Gleb Bryanski