Standard & Poor’s Ratings Services has lowered the corporate credit rating and long-term senior unsecured debt rating on Pakistan Mobile Communications (Mobilink) to ‘CCC+’ from ‘B-‘. The outlook on the corporate credit rating is negative.
The B- rating was described “Highly Speculative”, while the new CCC+ rating is classed as “Substantial risks”.
The rating on Mobilink reflects the weakened credit profile of parent Orascom Telecom Holdings on account of Orascom Telecom’s requirements for additional funding to execute its business plan and manage its very weak liquidity profile. “We believe Orascom’s weakened credit profile will significantly impair Mobilink’s financial flexibility. Mobilink could also face pressure to support the parent,” said Standard & Poor’s credit analyst Yasmin Wirjawan.
S&P expects Mobilink to continue to have weak liquidity, with refinancing risk, over the next 12 months. They also expect the company’s covenants, for the period ended June 2010, to come under pressure given a lack of parental support due to Orascom Telecom’s extremely weak liquidity. Historically, Mobilink has received significant support from the parent to meet its financial covenants through equity infusion or the waiver of management fees.
Mobilink is a 100% privately owned company by Orascom Telecom. It is also Orascom Telecom’s second-largest operation, and accounted for 20.6% of the consolidated EBITDA for 2008. This highlights the important role that Mobilink could play in Orascom Telecom’s strategy for additional funding.
Mobilink’s operating performance has improved over the past two quarters, with stable market share and EBITDA margins. The improvement in operating performance along with a significant cut in capital expenditure has resulted in positive free operating cash flow for the nine months ended Sept. 30, 2009.
The negative outlook reflects the liquidity pressure that S&P expects Mobilink might face because of parent Orascom Telecom’s extremely weak liquidity. The rating could be lowered if: (1) Mobilink’s liquidity deteriorates due to support to Orascom Telecom; (2) the company is unable to address the refinancing risk; or (3) there is heightened risk that the company might breach its covenants.
The outlook could be revised to stable if the liquidity position of Orascom Telecom improves materially, resulting in a revision of the outlook on the rating on Orascom Telecom to stable.
Via Cellular News