Standard & Poor’s rating department has recently demoted Uralsvyazinform’s credit outlook from Stable to Negative due to the telecommunications provider’s low liquidity. The company’s long-term credit rating was confirmed at BB-, the spokesperson for Standard & Poor’s reports.

The rating agency explains Uralsvyazinform’s credit rating has been affected by the company’s poor liquidity indicators and a dire need for short-term debt refinancing as well as having to control the growing expenses and keep up with the net operating margin. The fierce competition on the regional mobile connection market and the potential regulation risks were a factor, too.

‘The operator’s low liquidity is the major culprit. The company finds itself ever prone to the refinancing risks, since they do not have a lot of money and their credit lines cannot make up for more than the next six months’ payments,’ the agency says.

Standard & Poor’s analysts report this is typical of most Russian companies that depend entirely on the underdeveloped internal financial market.

‘We feel this kind of liquidity management is quite aggressive and risky in cases when getting a loan grows more and more troublesome. Given the grave situation on the Russian and global credit resource market, we don’t think Uralsvyazinform will be able to improve its liquidity indicators much over the next twelve months,’ they say.

All in all, the company’s liquidity is reported to fall behind its liabilities. According to Uralsvyazinform’s report, the provider had .9 billion RUR (in accordance with the Russian Accounting Standards) and 4.3 billion RUR worth of credit lines on June 30, 2008, while its debts amounted to 8.6 billion RUR and had to be paid off within one year’s time.

The company’s Negative Rating Outlook means that its credit ratings might keep going down in case Uralsvyazinform still has liquidity problems, turns out incapable of debt management, and does not get its key creditors’ (Gazprombank and Sberbank of Russia) agreement to support it.