JCR-VIS Assigns Initial Entity Ratings to Pakistan Telecommunication Company Limited

Karachi, October 11, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned initial long term entity rating of ‘AAA’ (Triple A) and short term rating of ‘A-1+’ (A-One Plus) to Pakistan Telecommunication Company Limited (PTCL). Long term rating of AAA signifies highest credit quality with negligible risk factors being only slightly more than those for risk-free GoP’s debt. Short term rating of A-1+ signifies highest certainty of timely payment, healthy short term liquidity including internal operating factors and/or access to alternative sources of funds, and is below risk free GoP’s short term obligations. Outlook on the assigned ratings is ‘Stable’.

The assigned ratings reflect PTCL’s leading market position, extensive network infrastructure, strong financial risk profile and adequate business risk profile. Ratings also incorporate strong sponsor profile with majority shareholding of 62% vested with the Government of Pakistan and 26% stake along with management control being held by Etisalat International Pakistan, a 90% owned subsidiary of Etisalat Group. Etisalat Group has healthy financial profile and international expertise in the telecom sector and is rated AA- (Double A Minus) on the international scale.

Revenues of the telecom sector in Pakistan have grown at a CAGR of 2.4% over the last 5 years. With increase in number of subscribers, teledensity has increased to 73% while broadband penetration stood at 29% leaving room for significant demand growth. Currently, 4 Cellular mobile operators (CMOs) continue to dominate the market and generate around four-fifth of the total revenues. Data business remained the main driver of growth after voice business stagnation. CMOs continue to face pricing challenges in a competitive market as reflected by low average revenue per user (ARPU) vis-à-vis regional peers. The remaining one-fifth of the revenues is generated through Local Loop, Long Distance International and Wireless Local Loop segment. The Wireline broadband segment has significant room for growth given that only 5% of the household having access to Wireline broadband vis-à-vis 48.1% average in Asia and 18% in Africa. Given the focus on improving service quality and strengthening in network infrastructure through the network transformation project (NTP), PTCL is well positioned to benefit from growth potential in the broadband segment.

PTCL continues to enjoy market leadership position in most business segments that it operates. PTCL has a market share of 80% in the documented broadband segment, around 90% in the fixed line voice segment and around 30% in the wireless data segment. PTCL’s share in the IP Bandwidth market stands at around 60% with Transworld being the other major player. Despite risk of product substitution from CMOs (for fixed line voice segment) and competition from OTT apps (for international business), business risk profile is supported by healthy growth outlook for broadband and corporate services segment. The ratings incorporate PTCL’s debt free balance sheet and abundant liquidity, important elements that provide the company with financial flexibility and support its rating.

Going forward, ratings are dependent on PTCL increasing revenues, maintaining EBITDA margins and sustaining prudent financial policies (including debt free balance sheet) in line with projections, while further strengthening its market positioning. Ratings are also subject to maintaining good liquidity while investing adequate levels of capex to strengthen its competitive capacity.

For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk