Moody's rates Sistema notes B3

Moody's Investors Service said it has assigned a prospective B3 rating to the proposed issuance of up to $350 million in senior unsecured notes due 2011 of Sistema Capital SA. The issuer is a wholly-owned subsidiary of JFSC Sistema, which will fully guarantee the notes on a senior unsecured basis.

Concurrently, Moody's has assigned a B3 senior unsecured issuer rating to the issuer and has affirmed the B1 senior implied rating assigned to JFSC Sistema.

The outlook is stable.

Moody's said the prospective B3 rating on the notes and B3 senior unsecured issuer rating reflect the effective subordination of the notes and the parent guarantee to all existing and future (secured or unsecured) obligations of Sistema's subsidiaries (excluding the issuer).

In particular, the notes will be structurally subordinated to the debt of Mobile Telesystems OJSC, the company's principal source of cash flows and asset value.

Positively, the ratings also reflect Sistema's sizable asset base, which includes majority stakes in leading mobile and fixed-line Russian telecommunications operators; the strong market and competitive positions of Sistema's major subsidiaries; and a relatively modest level of consolidated debt relative to consolidated operating cash flow.

The ratings also consider the company's extensive local presence and established relationships within the Russian market; the benefits of a number of strategic partnerships with large international companies; and the company's relatively high level of financial and operational transparency.

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