S&P: Southern Telecommunications Governance Score Raised To 'CGS-5'; Russia National Scale Raised To 'CGS-5.2'
09.10.2008 - Cbonds
S&P: Southern Telecommunications Governance Score Raised To 'CGS-5'; Russia National Scale Raised To 'CGS-5.2'
MOSCOW (Standard & Poor's) October 9, 2008--Standard & Poor's Governance Services said today it raised its corporate governance score (CGS) on Southern Telecommunications Co. (OJSC) (STC), the leading fixed-line telecommunications operator in the Southern Federal District of Russia to 'CGS-5' from 'CGS-4+'. At the same time, Standard & Poor's raised its Russia national scale CGS on the company to 'CGS-5.2' from 'CGS-4.9'.
“The increase in the scores are supported by several improvements in governance practice, including earlier disclosure of IFRS financial statements compared to 2007 and strengthening of the internal audit,” said Standard & Poor's governance analyst Anna Grishina. “Nevertheless, the lack of checks and balances to Svyazinvest’s influence remains a critical negative factor.”
The overall CGS on STC is the aggregate of four component scores on both the global and Russia national scales. Scores are between 1 (low) to 10 (high). Below are STC’s scores: First, on the global scale, second on Russia national scale.
-- Ownership structure and external influences 4+/4.8 -- Shareholder rights and stakeholder relations 6+/6.6 -- Transparency, disclosure, and audit 5+/5.9 -- Board structure and effectiveness 4+/4.8
STC’s corporate governance strengths include: -- Transparency is generally good, and proactive investor relations policies are in place. The company employs an internationally acknowledged auditor chosen via an open tender. -- There are four external directors on the Board, three of which are not exposed to significant conflicts of interests. -- The board has substantial authority and is active. This is supported by four board committees, all of which include external directors. -- Strong shareholder meeting procedures, and a wide measure of rights enjoyed by minority shareholders under Russian law. Standard & Poor's analysis, however, identified several weaknesses in the company's governance system, including: --Controlling shareholder Svyazinvest’s influence is dominant. The ability of minority shareholders and their representatives on the board to balance this influence is very limited. At the same time, Svyazinvest is exposed to significant conflicts of interest and has relatively weak governance practices. On several occasions in the past, Svyazinvest insisted on the approval of certain transactions by the board despite the objections from the independent directors. -- There is room for improvement in terms of timing of disclosure. The annual IFRS statements for 2007 were released in the beginning of July 2008, already after the annual shareholder meeting. -- There is a repeated qualification in the auditor’s opinion on IFRS statements. -- The frequency of face-to-face meetings of two out of three board committees is low.
The opinions expressed are the independent opinions of S&P’s Governance Services, a department of Equity Research Services, and do not reflect the opinions of other areas of Standard & Poor’s. Standard & Poor's GAMMA scores and other analytic services are performed as entirely separate activities in order to preserve the independence and objectivity of each analytic process. GAMMA scores are offered to companies in the emerging markets, with the primary focus on Brasil, Russia, India, and China (the BRIC countries).
Issuer profile: Public Joint – Stock Company «Southern Telecommunications Company» is a mega-regional telecommunications company, the principal fixed-line service provider for the Southern Federal District and one of the largest Russia telecoms belonging to Svyazinvest holding. The Company operates in ten members of the Russian Federation providing a broad range of telecommunications services including: traditional services (local telephony), value-added telecom services (Internet access, intelligent services, VPN, cable TV, Call centers) and other telecom services (document communication, wired radio broadcasting, lease of channels, etc.)
The inter-regional company was formed through a merger of the telecommunications operators of the Southern Federal District into one mega-regional entity with a central office located in Krasnodar. Prior to UTK’s formation, «Kubanelectrosvyaz» OJSC registered on 20 May 1994, had operated in the territory of the Krasnodar Kray. In 2001 «Kubanelectrosvyaz» OJSC was renamed «Southern Telecommunications Company» PJSC. On 21 December 2001 it was decided to reorganize «UTK» PJSC through a merger of the nine largest telecommunications operators of the Southern federal district into it. The process of the reorganization was completed early in 2003. At present «UTK» PJSC incorporates 10 branches: Adygeia branch, Astrakhan branch, Volgograd branch, Kabardino-Balkarian branch, Kalmykia branch, Karachaevo-Cherkessian branch, Krasnodar branch, Rostov branch, Northern Ossetian branch, Stavropol branch.
Today «UTK» PJSC has:
4,344,892 lines of installed capacity;
local network digitization rate of 66.57%;
over 132 ths broadband subscribers’ base;
over 29 ths highly skilled employees.
The mega-regional telecom Company operates in the territory of 520 thousand square kilometers with population of 18.5 million people. Due to purposeful work aimed at increase in the Company’s business efficiency under the conditions of quickly developing Russia telecom market, «UTK» PJSC raises the share of revenues from de-regulated services in the total revenue structure as well as builds up its presence in this market segment. Technical policy of «UTK» PJSC is based on introduction of new technologies in the district. The Company’s network is being upgraded and reconstructed on the basis of digital telecommunications systems. Due to competent management and efficient usage of production and cash resources the Company has advanced in introduction of fundamentally new technologies and creation of digital network making it possible to provide the customers with traditional telecommunications services as well as with new telecom services based on xDSL and ADSL2+ equipment, VPN construction, multi-service networks and intelligent networks.
The Company’s securities are circulating in the largest national and international stock exchanges: OJSC «RTS», CJSC «Stock Exchange MICEX». American Depositary Receipts representing common shares of the Company are quoted in the US over-the-counter market, and in Europe – Frankfort and Berlin Stock Exchanges and NEWEX.
Concentration of financial flows on the priority development trends makes it possible to realize projects of creating a unified information space of the region. High level of the merged company capitalization, powerful production basis, more than century-old operational experience in combination with modern well-qualified management allows «UTK» PJSC to maintain its leadership positions in the Russia telecommunications market as well as to go up to a new level of development in a qualitative sense. UTK’s management determines the priority development trends, improves the Company’s strategy and management structure, develops long-term plans aimed at attraction of investments for further development of the Company, broadening the range of offered telecommunications services and deployment of new technologies. Information openness, intensive technical development in combination with efficient management build up the Company’s reputation of a reliable business partner.
