The rating on Mobilink’s parent, Orascom Telecom, was placed on CreditWatch with positive implications on the company’s plans to raise $800 million through a rights issue. “We have placed the ‘CCC+’ rating on Mobilink on CreditWatch with positive implications in line with the rating action on Orascom Telecom,” S&P said.
The rating on Mobilink could be raised by one notch if the rating on Orascom Telecom is raised by at least one notch. Standard & Poor’s Ratings Services said on Tuesday that it had placed its ‘CCC+’ corporate credit rating on Pakistan-based wireless service provider Pakistan Mobile Communications Ltd (Mobilink) on CreditWatch with positive implications. At the same time, it placed the ‘CCC+’ issue rating on the senior unsecured debt issued by Mobilink on CreditWatch with positive implications.
“The CreditWatch reflects our view that Mobilink’s financial flexibility would improve and the potential pressure to support its parent Orascom Telecom Holdings S.A.E (CCC+/Watch Pos/-) would reduce if there is an improvement in the parent’s credit profile,” said Standard & Poor’s credit analyst Yasmin Wirjawan. In our opinion, Orascom Telecom’s $800 million rights issue should improve its liquidity.
“We expect the likely improvement in Orascom Telecom’s credit profile to ease the potential pressure that Mobilink could have come under because of the important role it could have played in the parent’s strategy for additional funding; Mobilink, 100 percent owned by Orascom Telecom, is the parent’s second-largest operation, which accounted for 20.6 percent of its consolidated EBITDA for 2008.
The likely improvement in Orascom Telecom’s credit profile would also boost Mobilink’s financial flexibility. This would help Mobilink mitigate any refinancing risk from its weak liquidity and potential pressure on its covenants in June 2010. In our view, Mobilink’s liquidity is weak with cash and cash equivalents of $77 million, as well as undrawn committed credit facilities of $40 million, compared with debt due in one year, excluding equipment payables, of about $211 million.
The CreditWatch placement on Mobilink will be resolved on the resolution of the CreditWatch on the parent Orascom Telecom. The rating on Mobilink could be raised by one notch if the rating on its parent is also raised by at least one notch. However, this is based on our assumption that the ‘B-‘ sovereign rating and transfer and convertibility risk assessment for Pakistan (B-/Stable/C) does not deteriorate.