As Mobilink’s results are going to be announced in coming days, strong expectations have been shown by Moody’s Investors as optimistic and strong for attaining B2 rating level. But operator’s 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.mobilink telecom recorder
“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.
Spectrum Auction Results Are Credit Positive for Mobilink
The outcome of the 3G and 4G spectrum auctions held on 23 April in Pakistan are credit positive for Pakistan Mobile Communications Limited (Mobilink).
“Mobilink was able to secure 10MHz of 3G spectrum in the 2100MHz frequency for $300.9 million, which is well below our earlier expectation of at least $400 million. In addition, it was only 2% above the base price set by the regulator — the Pakistan Telecommunication Authority (PTA),” says Yoshio Takahashi, a Moody’s Assistant Vice President and Analyst.
The size of the spectrum license is also sufficient for the company to defend its existing leading market position in terms of number of subscribers.
The launch of 3G services will allow Mobilink to sustain revenue and earnings growth as the increased data revenue will drive up the average revenue per user (ARPU). According to PTA, ARPU in Pakistan is $2.14 per month — currently lower than neighboring India ($2.56 per month) and Sri Lanka ($2.35 per month).
“We expect Mobilink to benefit from the increased data revenues as subscribers shift to 3G services. The ongoing migration to 3G services will also be fuelled by the proliferation of more affordable smartphones,” adds Takahashi.