Analyst
Kanwal Ejaz
kanwal.ejaz@pacra.com
+92-42-35869504
www.pacra.com
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Related Research
PACRA Assigns Preliminary Rating to Pakistan Mobile Communications Limited | PPST Sukuk-II | PKR 15bln
Rating Type | Debt Instrument | |
Current (11-Oct-24 ) |
||
Action | Preliminary | |
Long Term | AA | |
Short Term | A1 | |
Outlook | Stable | |
Rating Watch | - |
Pakistan Mobile Communications Ltd (“PMCL”/ “JAZZ” or the Company”) is a wholly owned subsidiary of VEON Limited (VEON), which provides essential communication and digital services to ~160mln customers worldwide. Currently, VEON is operating in six countries including Pakistan, Ukraine, Bangladesh, Kazakhstan, Uzbekistan, and Kyrgyzstan. PMCL’s ratings take comfort from formidable ownership and governance structure which is further supported by the sustainable and prominent business profile. JAZZ is the market leader, holding a 37% share of the cellular market, with total subscribers reaching 193mln. The Company is expanding its revenue streams by pursuing new ventures, including digital financial services , cloud platforms for advanced data hosting services in Pakistan. The telecom sector saw revenue growth of ~ 17%, reaching PKR 850bln in CY23 (725bln in CY22), driven mainly by price inflation reflected in average revenue per user (ARPU). However, macroeconomic challenges have increased the cost of doing business, affecting the sector’s overall financial performance. In 1HCY24, PMCL posted an ~ 26% revenue growth, largely due to improved pricing strategies, though gross and operating margins declined due to inflationary pressures. The Company's financial risk profile remains manageable; EBITDA is expected to rise and hence will support coverage ratios. Plus, the decline in interest rate would further help.. The capital structure is leveraged, consisting mainly of long-term borrowings for capital expenditures and short-term loans for working capital management. The Company is looking to capitalize on different products' by establishing different verticals for its digital products.
The ratings are dependent upon the sustenance of a leading market position, robust revenue growth and profitability, and a sound financial matrix. As capital structure becomes leveraged, maintenance of sound financial discipline is imperative to hold.
About
the Entity
PMCL – brand name ‘Jazz’ commenced its operations in August 1994. The Company is a subsidiary of International Wireless Communications Pakistan Limited , which, directly and indirectly holds 85% of the issued share capital in the Company. VEON Pakistan Holdings B.V ("VEON Pak") holds 15%. The ultimate parent company is VEON Ltd with its headquarters in Amsterdam. Both TMGL and VEON Pak are wholly owned subsidiaries of VEON Ltd. PMCL's Board of Directors (BoD) is mainly composed of representatives from VEON.
About
the Instrument
PMCL is set to issue the second-rated unsecured privately placed short-term Sukuk-II (while Sukuk-1 ~PKR 15bln is already in the market and will be redeemed by 24 October, 2024). The second issue amount shall be up to PKR ~15bln (inclusive of a Green Shoe Option up to PKR ~5bln) to be disbursed either in single or multiple tranches/issues. The funds will be utilized for general corporate purposes, including but not limited to capital expenditure and license-related payments. The tenor shall be six (06) months from the Issue Date of each tranche. Similarly, principal to be redeemed as bullet payment six (06) months after the issue date. Profit rate is expected to be set at 3MK - [10] bps p.a. Profit will be payable at maturity of the Issue and will be calculated on a 365/366-day year basis. The issuance of PP Sukuk-II is at an advanced stage.