Inside Financial Markets



Hong Kong, May 05, 2014 — Moody’s Investors Service says that Pakistan Mobile Communications Limited’s (Mobilink) results for the fiscal year ended December 2013 (FY2013) were strong for its B2 rating level.

However, its B2 corporate family rating remains constrained by a two-notch differential with the Caa1 sovereign rating to reflect the macroeconomic and financial market risk that the company shares with the sovereign.

“We estimate that Mobilink’s leverage, as measured by adjusted debt/EBITDA, improved to about 1.1x in FY2013, from 1.8x in FY2012, due largely to the repayment of debt,” says Yoshio Takahashi, a Moody’s Assistant Vice President and Analyst.

“However, we expect its adjusted debt/EBITDA to rise to 1.8x-2.0x in FY2014 to finance the 3G spectrum payment of $300.9 million. Nevertheless, this ratio will remain strong for its B2 rating,” adds Takahashi, who is also the Lead Analyst for Mobilink.

“Moreover, its leverage should decline to 1.5x-1.7x in FY2015, given the company’s solid cash flow generation.”

Moody’s expects Mobilink to achieve low-single-digit percentage revenue growth in FY2014, supported by the company’s continued subscriber growth. Subscriber numbers increased by about 4% on a year-over-year basis to 37.6 million in 4Q 2013.

In addition, the company’s revenue growth will be supported by an expected increase in data revenue from 3G subscribers who typically are higher data users.

While Mobilink recorded revenue growth of only 0.4% in FY2013, this result was largely because of extraordinary events, such as the government enforced network closure for security reasons in 4Q 2013.

Moody’s expects Mobilink to sustain revenue growth in FY2014, but the intense price competition in the 3G data services sector will pressure the company’s margins. Moody’s therefore expects Mobilink’s adjusted EBITDA margins to decline moderately to 38%-39% in FY2014 from 39.4% in FY2013. Such a result would still be strong for its B2 rating level.

Mobilink’s liquidity profile is adequate, with a cash balance of $113 million and undrawn committed lines totaling $324 million as of 31 December 2013. Moody’s expects Mobilink’s operating cash flows to total around $350-$400 million in the next 12 months.

These funds will be sufficient to cover its short-term debt over the next 12 months of about $74 million and its total estimated capital expenditure of $600 million in 2014, including the 3G spectrum payment of $300.9 million.

Moody’s also understands that Mobilink was in full compliance with its financial covenants as of 31 December 2013.

While Mobilink’s rating does not include any uplift, its rating continues to incorporate ongoing support from its indirect parents, Global Telecom Holdings SAE (GTH, unrated), and its ultimate shareholder, VimpelCom Limited (Ba3 stable); both of which are globally diversified and larger telecommunications groups.

For example, management fees to GTH, which averaged 7%-8% of Mobilink’s total revenue, have been accrued but not fully paid. As a result, Mobilink’s service fee payable increased by about $59 million in FY2013. This helped Mobilink reduce its debt in FY2013 and secure adequate funds for the 3G auction held in April 2014.

Full payment of the charge is not expected until Mobilink has adequate liquidity headroom, after resolving its capex and debt repayment commitments.

The principal methodology used in this rating was the Global Telecommunications Industry published in December 2010. Please see the Credit Policy page on for a copy of this methodology.

Mobilink is the largest mobile operator in Pakistan by number of subscribers. According to the Pakistan Telecommunication Authority, Mobilink had about 38.2 million customers equating to a subscriber market share of about 28% as of March 2014. The company estimates that its market share is around 37% based on an active subscriber base

Sanie Khan

Sanie Khan holds a deep knowledge of the financial markets in Pakistan. Based in Karachi, he has over 20 years of hands-on management experience in financial technologies and managing operations in the financial sector. He was the General Manager at the Pakistan Stock Exchange (PSX) for 17 years. He along-with senior members of Exchange

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)