Fitch rates India's Sistema Shyam's Term Loan 'A-(ind)(SO)'

Dec 10 - Fitch Ratings has today assigned India's Sistema Shyam Teleservices Limited's (SSTL) INR7.5bn term loan from Punjab National Bank (PNBK.BO: Quote, Profile, Research) a National Long-term rating of 'A-(ind)(SO)'.
The rating is based solely on the corporate guarantee from SSTL's parent, Sistema JSFC (SSAq.L: Quote, Profile, Research) (Sistema: 'BB-'/Stable), which owns a 73.7% stake. SSTL has the license and the required spectrum to roll out services in 22 telecom circles in India, and is in the process of rolling out its pan-India telecom services network; it has commenced roll-out in eight circles. During FY09 (year ending March 2009), Sistema infused INR20bn by way of equity and INR11.67bn as a loan in SSTL.
Fitch notes that SSTL has a weak stand-alone credit profile. During FY09, the company posted operating revenues of INR952m, operating EBITDA of negative INR2.2bn and a net loss of INR5.9bn. The management expects the company to be EBITDA positive from FY13 and net income positive from FY16. India's telecom market is highly competitive, and has recently been further affected by tariff wars led by the new entrants in the sector. The Indian telecom sector has low average revenue per user (ARPU) of under INR300 (USD6), combined with a high number of competing telecom operators within a telecom circle.
An upgrade in SSTL's guaranteed debt programme would be based on the upgrade of Sistema's rating. Likewise, a downgrade of Sistema's rating or the revocation of the corporate guarantee for the rated programme constitute negative ratings drivers.
Sistema is the majority share holder in SSTL with a 73.7% equity stake, while the Shyam Group holds a 23.79% stake and the remaining 2.5% is held by Indian minorities. Formerly known as Shyam Telelink Limited, SSTL was re-named in FY09. Incorporated in 1995, the company obtained a Basic Telephony Service License in 1998 for the Rajasthan Circle and started its commercial operations in June 2000 under the 'Rainbow' brand name. Further in 2003, the Company migrated to the Unified access service Licenses. Presently SSTL offers mobile telephony services on code division multiple access (CDMA) platform in eight circles namely - Rajasthan, Tamil Nadu, Kerala, West Bengal, Bihar, Kolkata, Delhi and Karnataka.
Sistema is a diversified, Russia-based industrial investment holding company with subsidiaries operating in various industries, including telecoms, technology, banking, real estate, tourism and the media. Telecommunications dominate Sistema's profile.