VIS reaffirms entity ratings of PTCL

January 13, 2025 (MLN): VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Pakistan Telecommunication Company Limited (PSX: PTC) at "AAA/A1+" (Triple A/ A1 plus).

The medium to long-term rating of 'AAA' denotes the highest credit quality.

The risk factors are negligible, only slightly higher than those for risk-free Government of Pakistan debt.

The short-term rating of 'A1+' denotes the Strongest likelihood of timely repayment of short-term obligations with outstanding liquidity factors.

The previous rating action was announced on November 7, 2023.

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

Having 48 years of operating experience, Etisalat is present in 32 countries and is one of the largest telecom operators in the world.

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

The ratings are also supported by the low business risk profile of the telecom sector due to the non-cyclical nature of the industry.

This is further reinforced by the dependence of other operators on the company’s infrastructure and the low sensitivity of its operations to inflationary pressures.

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 reflect PTCL's strategic market position as the country’s leading Integrated Information Communication Technology Company, having the largest fixed-line network with the highest market share.

PTCL has wholly owned subsidiaries, including Pak Telecom Mobile Limited (UFONE), a mobile service provider, and a Microfinance Bank, U-Microfinance Bank Limited.

PTCL currently is in the process of acquiring Telenor Pakistan.

The ratings reflect the company’s strong financial risk profile, highlighted by positive revenue momentum and sizable margins and profitability indicators.

They also consider the company’s adequate liquidity profile and substantial debt-service coverages.

Despite the procurement of incremental long-term borrowings to support PTML, gearing remained manageable.

Given, PTCL’s plans to acquire Telenor and to incur capital expenditure, gearing indicators of the company are expected to trend upwards.

However, the magnitude of the increase is expected to be partially offset by the positive trajectory of the PTCL’s profitability, coupled with the planned asset monetization strategy.

The ratings will remain contingent upon the retention and improvement of market share, along with the maintenance of capitalization and liquidity indicators.

Additionally, timely incorporation of technology updates into their system will be crucial.

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