Not for profit: MegaFon saved 30 billion rubles to minimize currency risks

    Operator MegaFon launched a program to minimize currency risks in 2012. In 2015, the loss from exchange rate differences decreased, according to him, by 41%. In 2015, it amounted to 10 billion rubles, and in 2014 - 16.9 billion rubles.

    According to the financial director of the company Gevork Vermishyan, the operator now holds about 80% of the cash in dollars.

    In addition, the operator began to actively use derivative financial instruments such as currency swaps, for example. For a company, it’s like taking a loan in rubles, buying dollars for them and refinancing another loan with them, Vermishyan explains.

    However, the cost of such funding in rubles is more attractive than with affordable ruble financing. Since 2013, Megafon has entered into several such swaps worth $ 600 million.

    Megafon prefers to enter into currency swap transactions during periods of ruble appreciation, when the market is volatile and rates on instruments are lower. In addition to foreign currency debt, Megafon hedges with the help of swaps and capital expenditures - when an open foreign exchange position can lead to a minus due to upcoming investments in dollars, Vermishyan says.

    The operator uses these tools solely for protection against currency risks, and not for the sake of earning, he emphasizes.

    Megafon receives almost all of its revenue in rubles, and a substantial part of its costs is in foreign currency, Gazprombank analyst Sergei Vasin told Vedomosti.
    According to his estimation, about 50% of expenses for the purchase of equipment, which in 2015 amounted to 70.2 billion rubles, are tied to currency. In 2016, according to the company's forecast, they should grow to no more than 75 billion rubles. The share of loans in foreign currency at Megafon amounted to 37% at the end of 2015.
    Among mobile operators whose significant share of investments is pegged to the dollar, hedging is generally common, especially in the last two years, notes Fitch analyst Vyacheslav Bunkov. If before the devaluation of the ruble at the end of 2014, the currency component in operators ’capex was on average about 30%, now it has grown to 50%, he says.

    VimpelCom seeks to minimize losses from exchange rate differences by negotiating with vendors, confirms its representative, Anna Aybasheva. He also uses “leverage and instruments of long-term partnership” - this significantly reduces the cost of equipment and compensates for the growth rate.

    T2 RTK Holding ( Tele2 brand) Among other hedging instruments, a non-deliverable forward began to be used in 2015, said his representative Konstantin Prokshin. The company planned its activities so that all expenses for the purchase of equipment were covered by the obligation to purchase foreign currency. “In 2015, the bank and I fixed the exchange rate at 60 rubles / euro per year - only because of this the operator increased the investment program by 3 billion rubles,” says Prokshin.

    MTS , according to its representative Dmitry Solodovnikov, uses a full range of tools to reduce the effect of volatility in exchange rates and interest rates.

    However, MegaFon has achieved the greatest success in this direction, saving 30 billion rubles.

    The revenue of Megafon in 2015 remained at the level of 2014 and amounted to 313.3 billion rubles due to a drop in revenues from the sale of equipment, the company's financial statements for 2015 say . However, financial performance as a whole met expectations, the company noted. The main driver of development remains revenues from data transmission, the share of mobile Internet in total revenue also continues to increase.

    Net profit of MegaFon increased by 6.3%, to 39 billion rubles in 2015. The company explains this growth as “a smaller amount of losses from exchange rate differences and profits from derivative financial instruments as a result of effective management of currency risks”.

    EPH Investment Committee Member Alexander Nikolaev believesthat in any country, currency fluctuations are among the standard entrepreneurial risks: “In world practice, there are very diverse mechanisms for hedging the risks that counterparties face in their business, including changing exchange rates.”

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