PACRA Assigns Initial Rating to Pakistan Mobile Communications Limited | PPST Sukuk-II |PKR 15bln | Oct-24

Pakistan Mobile Communications Ltd (“PMCL”/ “Jazz” or the Company”) ratings benefit from its strong ownership and governance structure, which is further bolstered by its sustainable and prominent business profile. VEON Limited (VEON) is the ultimate parent Company of Jazz, which provides essential communication and digital services to ~160mln customers worldwide. VEON is operating in six countries including Pakistan, Ukraine, Bangladesh, Kazakhstan, Uzbekistan, and Kyrgyzstan. Jazz is the market leader, holding a ~37% share of the cellular market, with total subscribers reaching ~193mln. The Company is diversifying its revenue streams by exploring new ventures, including digital financial services and cloud platforms for advanced data hosting in Pakistan. The Company also aims to capitalize on various products by establishing distinct verticals for its digital offerings. In 2024, Pakistan's telecom sector has shown significant growth, primarily driven by the expansion of 3G and 4G services. This growth has been further fueled by price inflation, which has positively impacted the average revenue per user (ARPU). However, macroeconomic challenges have increased the cost of doing business, affecting the sector’s overall financial performance. In IHCY24, PMCL posted a ~ 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 adequate, with EBITDA expected to rise, thereby supporting coverages ratios. Additionally, the decline in interest rates will further aid in improving the financial profile of Jazz. The capital structure is leveraged, consisting mainly of long-term borrowings for capital expenditures and short-term loans for working capital management.
The ratings are contingent upon maintaining a leading market position, robust revenue growth & profitability, and a sound financial matrix. As the capital structure becomes more leveraged, it is imperative to uphold sound financial discipline.

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 (BoDs) is mainly composed of representatives from VEON.

About the Instrument
PMCL has issued the rated, unsecured, privately placed short-term Sukuk-II (PPSTS-II), (while previous PPSTS of PKR ~15bln has been redeemed from the market on October 24, 2024). The issue amount of PPSTS-II is PKR ~15bln and disbursed at a face value of PKR 1,000mln each or in multiple thereof. 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.