'Standard & Poors' Raises Mobilink’s Credit Rating

Standard & Poor’s Ratings Services raised its long-term corporate credit rating of Mobilink to ‘B-‘ from ‘CCC+’. The outlook is stable. At the same time, S&P raised issue rating on the company’s US$112.2 million senior unsecured notes due 2013 to ‘B-‘ from ‘CCC+’.

“We raised the rating on Mobilink to reflect our opinion of the improvement in its funding profile and Pakistan’s macroeconomic situation,” said Standard & Poor’s credit analyst Yasmin Wirjawan. This follows Standard & Poor’s decision to raise the long-term sovereign credit ratings on Pakistan (B-/Stable/C).

The rating on Mobilink also reflects our view of domestic political uncertainties and security risks, weak cash flow protection measures, and highly intense domestic industry competition. These risks are partly offset by strategic benefits from its parent, Orascom Telecom Holdings S.A.E. (B/Stable/–), and Mobilink’s leading but weakened market position in the country.

In our view, Mobilink continues to remain exposed to the weak macroeconomic environment, external liquidity position and security situation in Pakistan. However, we expect the recent improvement in macroeconomic environment to result in better operating performance. Also, in the near term, we expect Mobilink to face less funding challenges as it is expected to register positive free operating cash flows through significant reduction in capital expenditure and suspension of management fees to Orascom Telecom.

Pakistan’s cellular market continues to face intense competition, resulting in lower subscriber numbers and market share for Mobilink. Nevertheless, Mobilink has maintained its No. 1 market share both in terms of subscribers and revenue in Pakistan’s wireless market.

We believe parent Orascom Telecom would continue to provide support to Mobilink, if required, considering: (1) the cross-default clause at the parent company in the event of a covenant breach of material subsidiaries, including Mobilink; and (2) Mobilink is the second-largest operation of Orascom Telecom by most financial measures and accounted for 20.6% of the consolidated EBITDA for 2008.

The stable outlook reflects the expected improvement in Mobilink’s financial risk profile, compliance with financial covenants, and continued support from parent Orascom Telecom, said Ms. Wirjawan. It also factors in the improvement in Pakistan’s macroeconomic situation, which will have a positive impact on Mobilink.

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