UPDATE 2-Russia's Megafon converts cash to roubles, HKD for protection

Thu Jul 31, 2014 5:58am EDT

(Releads, adds CFO comments)

By Anastasia Teterevleva

MOSCOW, July 31 (Reuters) - Russia's Megafon said on Thursday it had converted its foreign currency deposits into roubles and Hong Kong dollars to protect the mobile phone operator against any further Western sanctions.

Neither Megafon nor its controlling shareholder, Russia's richest man Alisher Usmanov, are subject to the sanctions that the European Union and the United States have imposed on Russia over its role in the Ukraine crisis.

But, fearful that further Western sanctions could complicate payments in euros and dollars, Megafon will now keep 60 percent of all its cash holdings in Russian roubles with the other 40 percent deposited with Chinese banks in Hong Kong dollars.

"We formed this position in the last quarter and deposited with Chinese banks in order to simplify payments with our key network equipment supplier, the Chinese company Huawei, as well as to limit the risks associated with possible difficulties in working with European banks," said Gevork Vermishyan, Megafon's chief financial officer.

Russian President Vladimir Putin has encouraged companies to protect themselves from possible Western sanctions by either bringing their assets home, or by increasingly doing business with companies in the East.

"We are not feeling extra-serious risks (related to sanctions)," said Vermishyan, adding that Megafon's pure focus on Russia was its advantage over rivals who have a significant exposure to Ukraine.

Megafon earlier on Thursday reported a 2.2 percent rise in second-quarter net profit to 13.9 billion roubles ($392 million) compared with 13.6 billion a year earlier and an average forecast of 14.4 billion in a Reuters poll.

Operating income before depreciation and amortisation (OIBDA) was flat, year-on-year, at 34.3 billion roubles, while analysts had forecast 34.5 billion. The company said its OIBDA margin slid to 44.7 percent, in line with expectations, from 47.5 percent a year ago.

Revenue grew 6.1 percent to 76.7 billion roubles, while analysts had expected 77.2 billion, the company said. In the first half of 2014, revenues rose 8.3 percent year-on-year, slightly above the top end of its full-year forecast range.

It reiterated its 2014 forecast for revenue growth in a 6-8 percent range and for the OIBDA margin of at least 44 percent. ($1 = 35.4600 Russian Roubles) (Reporting by Anastasia Teterevleva and Maria Kiselyova; Editing by Elizabeth Piper and)