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North-West Telecom

May 14, 2004

Standard & Poor’s raises OJSC North-West Telecom’s Credit Rate

On May 12, 2004 the international rating agency Standard & Poor's raised the rating outlook for OJSC North-West Telecom from «Stable » to «Positive » and confirmed the Company’s long-term credit rates at the «B- » level.  

Simultaneously, Standard & Poor’s raised the long-term credit rate of NWT from «ruBBB» to «ruBBB +» by the Russian scale.

The rates were revised with regard to the Company’s steady operation since the restructuring of nine basic fixed communication operators of the North-Western Federal District, which resulted in the Company’s stronger position on the market and better business performances.  

Standard & Poor’s analysts note the progress of NWT in the Company’s business consolidation in terms of operations, its moderately aggressive approach to financing of its network updating and expansion program, moderate net cash flow from operations of the united company with the expected overall debt to EBITDA ratio of 1.1, and expected improvement of the Company’s business performances due to the affiliated with of OJSC Lensviaz and OJSC Sviaz of the Republic of Komi.

A limiting factor in the rating revision was the credit capacity of OJSC North-West Telecom, which is described by low financial flexibility due to a negative net operating cash flow, by a high proportion of short-term debts, and susceptibility to currency risks related to liabilities denominated in foreign currency. Analysts expect, however, that the credit capacity of NWT will improve if the Company is successful in increasing its earnings in the competitive segments of the telecommunication market, while continuing to update its network without any material debt, load increase or deterioration of its moderately negative net cash flow from operations.  

Undergoing the rating procedures is an integral part of the OJSC North-West Telecom strategy aimed at higher information transparency and investment attractiveness of the Company. OJSC North-West Telecom is planning further efforts to achieve improvement of its rates.

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