Fitch Ratings has affirmed VEON Ltd's Long-Term Issuer Default Rating (IDR) and senior unsecured rating at 'B+'.

The senior unsecured rating has a Recovery Rating of 'RR4'/50%. The Outlook on the IDR is Stable.

The rating reflects weak Russian and Ukrainian operating environments following Fitch's downgrades of the Country Ceiling of Russia to 'B-', before being withdrawn, and Ukraine's Country Ceiling to 'B-'. With limited access to cash in these countries, the group's credit profile is primarily shaped by operations in other markets. Russia and Ukraine generated 62% of the group's reported 2021 EBITDA. Analytical deconsolidation of operations in Russia and Ukraine leads to a significant increase in leverage to around 3.5x net debt/EBITDA at end-2022.

VEON's ratings have been withdrawn for commercial purposes. Fitch will no longer provide ratings or analytical coverage of VEON.

Key Rating Drivers

Deconsolidate Russia and Ukraine: The introduction of currency controls in Russia limits VEON's access to cash generated by its Russian operations. We also view access to cash flows in Ukraine as problematic. We therefore deconsolidate these operations from the overall group in our assessment. Nonetheless, both businesses in Russia and Ukraine are deemed self-sufficient and more than 90% of VEON's base stations are operational in Ukraine, according to management. Therefore, we do not expect these two countries to require any cash funding from the holding company.

Weaker Operating Environment: VEON benefits from wide geographic diversification across emerging markets, but with limited contribution from operations in countries with strong operating environments. Without Russia and Ukraine, Pakistan, with its Country Ceiling of 'B-', accounted for almost half of VEON's remaining reported 2021 EBITDA, while contribution from Kazakhstan (Country Ceiling BBB+) was slightly under a quarter. Without Russia and Ukraine, the weighted average level of Country Ceilings across VEON's asset portfolio is close to 'B+'.

Substantial Foreign-Exchange (FX) Mismatch: VEON faces a significant mismatch between its cash flows in local currency and significant foreign-currency debt. However, EBITDA generated in Kazakhstan, which has an investment-grade Country Ceiling of 'BBB+', is sufficient to comfortably cover VEON's hard-currency gross interest payments (excl. Russia and Ukraine).

High Deconsolidated Leverage: With Russian and Ukrainian operations deconsolidated, VEON's leverage is expected to be around 3.5x net debt/EBITDA at end-2022. As we forecast pre-dividend free cash flow (FCF) to be neutral to negative till 2024, VEON could reduce leverage from organic EBITDA growth, which we expect to be around mid-single digits in 2023 and 2024. The resumption of dividend payments in 2023 could increase leverage further, as could adverse FX movements.

1Q22 Results Reasonable: VEON reported flat revenue in 1Q22 and a 4% decline in EBITDA. However, revenue and EBITDA grew between single- and low double-digit percentages annually in all countries in local-currency terms. Most, if not all key performance indicators, improved in 1Q22 in all countries where VEON operates.

Derivation Summary

No longer relevant as the ratings have been withdrawn.

Key Assumptions

No longer relevant as the ratings have been withdrawn.

RATING SENSITIVITIES

No longer relevant as the ratings have been withdrawn.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

Liquidity and Debt Structure

Strong Liquidity: As of June 2022, VEON had around USD2.4 billion of cash, of which USD1.8 billion (excluding future proceeds from Algeria transaction) was at the headquarters with large international banks.

VEON's liquidity is sufficient to meet its obligations over the next 12 months and the company has no material debt maturing in 2022.

Issuer Profile

VEON is a facilities-based mobile network operator with leading or well-established competitive positions in most of its countries of operations including Russia, Ukraine, Kazakhstan, Bangladesh and Pakistan.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg.

Following the withdrawal of the ratings of VEON, Fitch will no longer be providing the associated ESG relevance scores.

RATING ACTIONS

Entity / Debt

Rating

Recovery

Prior

VEON Holdings B.V.

senior unsecured

LT

B+

Affirmed

RR4

B+

senior unsecured

LT

WD

Withdrawn

B+

VEON Ltd.

LT IDR

B+

Affirmed

B+

LT IDR

WD

Withdrawn

B+

senior unsecured

LT

B+

Affirmed

RR4

B+

senior unsecured

LT

WD

Withdrawn

B+

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VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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