VIS assigns preliminary rating of ‘A-1+’ to PTCL’s STS-III

March 19, 2024 (MLN): The VIS Credit Rating Company Limited (VIS) has assigned preliminary instrument ratings to Rs5 billion Short-Term Sukuk III (STS-III) of Pakistan Telecommunication Company Ltd (PSX: PTC) at ‘A-1+’ for the short-term with a stable outlook forecast, the latest press release issued by VIS showed.

The short-term rating of 'A-1+' denotes the highest certainty of timely payment, liquidity factors are outstanding, and safety is just below the risk-free short-term obligations of the government.

The outstanding entity ratings of PTCL are ‘AAA/A-1+’ with a ‘Stable’ outlook.

PTCL initially a state-owned entity, was incorporated as a public limited company on December 31, 1995 taking over the telecommunication business from Pakistan Telecommunication Corporation (PTC) as per the Pakistan Telecommunication (Re-organization) Act 1996.

Listed on the Pakistan Stock Exchange Limited (PSX) with headquarters in Islamabad, PTCL provides a wide range of telecommunication services across Pakistan, including Azad Jammu and Kashmir and Gilgit Baltistan.

PTCL also has wholly owned subsidiaries, which include Pak Telecom Mobile Limited (PTML) and U-Microfinance Bank Limited. In addition, PTCL has also signed a Share Purchase Agreement (SPA) for acquisition of Telenor Pakistan (Private) Limited.

PTCL plans to issue a rated, unsecured privately placed, STS-III of PKR 5.0 bln, based on Shariah principles.

The instrument being arranged by a leading commercial bank will have a maturity of up to six months; the proceeds will be used to finance the working capital requirements of the Company. STS-III will have a profit rate of 6M KIBOR + 15 bps per annum.

The assigned ratings are underpinned by the medium business risk profile of the telecom sector owing to the non-cyclical nature of the industry with low sensitivity to inflationary pressures on operations conducted.

Moreover, business risk also factors in the capital-intensive and highly regulated nature of the sector serving as a natural high barrier to entry for new entrants.

The assigned ratings also reflect PTCL's strategic market position as the country’s leading Integrated Information Communication Technology Company, having the largest fixed-line network with over 71% market share.

The ratings incorporate the issuer's strong sponsor profile, given that the GOP holds a significant shareholding of 62% while Etisalat Group of UAE holds a 26% equity stake with management control.

The ratings also consider the financial soundness and management acumen of Etisalat Group; rated AA- and Aa3 by S&P and Moody's, respectively.

The ratings also reflect the sound financial risk profile of the company, marked by positive momentum in revenues, sizable margins and profitability indicators, adequate liquidity profile, and substantial debt-service coverages.

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