PACRA Assigns Initial Rating to Pakistan Mobile Communications Limited | PPST Sukuk | PKR 15bln

The ratings incorporate the vigorous business profile of Pakistan Mobile Communications Ltd (“PMCL or the Company”) represented by its leading market share of ~37% with ~72 million cellular subscribers as of April 24. Company is expanding its revenue streams with the establishment of a new data center, aimed at delivering state-of-the-art data hosting services in Pakistan. The Telecom sector posted revenue growth during CY23 which is mainly due to price inflation, however, financial performance remained subdued due to macroeconomic challenges resulting in a high cost of doing business. During CY23 the topline of the company posted ~19.9% growth, due to a better pricing strategy which helped to improve average revenue per user (ARPU). However, margins posted a decline, mainly due to cost-push inflation, foreign exchange loss, and soaring borrowing costs. During the period under review, PMCL has expanded its 4G network with 1000 new 4G sites. Currently, there are 133 million 3G/4G subscribers and PMCL holds its position as a market leader in this segment as well. The Company's financial risk profile showed dilution, with modest cashflows and coverages. Capital structure is leveraged and comprises long-term borrowings. The parent company reportedly has ample cashflows and therefore there are no significant risks leading to its continued operations or any tickle-down effect on PMCL.
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
Pakistan Mobile Communications Limited (PMCL) – brand name ‘Jazz’ commenced its operations in August 1994. The Company is a subsidiary of International Wireless Communications Pakistan Limited (incorporated in Malta) ("IWCPL") which, directly and indirectly (through Telecom Management Group Limited ("TMGL") holds 85% of the issued share capital in the Company. VEON Pakistan Holdings B.V (incorporated in Netherlands) ("VEON Pak") holds 15% of the issued share capital in the Company. The ultimate parent company is VEON Ltd with its headquarters in Amsterdam, The Netherlands (incorporated in Bermuda) ("VEON"). Both TMGL and VEON Pak are wholly owned subsidiaries of VEON Ltd. VEON is among the largest telecom operators in the world in terms of subscribers. The company's Board of Directors (BoD) is mainly composed of representatives from VEON.

About the Instrument
The Company issued rated, unsecured, privately placed short term sukuk. The issue amount is PKR 15,000mln and disbursed at a face value of PKR 1,000,000 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 set at Base Rate + 25 bps p.a. with a Floor of 5% & a Cap of 30%. Profit will be payable at Maturity of the Issue and will be calculated on a 365/366 -day year basis.