The Pakistan Credit Rating Agency Limited
P
M
C
L
N EW
[A PR -15]
P REVIOUS
[M AY -14]
R EPORT CONTENTS
1. R ATING A NALYSES
2. F
INANCIAL
I
NFORMATION
3. R
ATING
S
CALE
4. R EGULATORY AND S UPPLEMENTARY
D
ISCLOSURE
A PRIL 2015

The Pakistan Credit Rating Agency Limited
R ATING A NALYSIS
ƒ
Industry: Pakistan’s telecom revenue after witnessing a growth of ~6%, stood at PKR
(A PRIL 2015) 465bln in FY14. Cellular mobile segment continues to have the largest share (FY14:
~70%; FY13: 71%). With USD 903mln FDI inflows on account of 3G and 4G license auction, telecom investment reached to USD 1,816mln in FY14 – three times higher than
P AKISTAN M OBILE last year ( FY13: USD600). The number of active cellular subscribers, after touching the
C OMMUNICATIONS L IMITED level of 140mln at end-Jun14, currently stands at 136mln owing to significant decline in
(PMCL) the subscribers of Ufone and Warid. Though, PMCL, continues to be the largest market
R ATING R ATIONALE player with a share of – 28% at end-Feb15, nevertheless ongoing biometric SIM
PMCL is the largest cellular verification may rationalize the share of the industry players. As competitive landscape operator with ~28% share of total exists, average revenues per user (ARPUs) have yet to stabilize. Going forward, business cellular connections in the potential in value added services is expected to provide impetus to revenue growth to the country. Successful acquisition of
3G license (10MHz) helped the market players, though time-line is uncertain.
ƒ
Performance: During CY14, in line with network expansion, up gradation and company to sustain its strong aggressive marketing efforts, PMCL aptly sustained its subscriber base. Amidst declining business profile in a highly ARPU (Dec14: PKR 196; Jan14: PKR 221), PMCL’s top-line witnessed a decline of 7%. competitive telecom landscape. However, considerable reduction in operating costs helped the company register positive
Given considerable decline in operating margin depicting a marked improvement YoY. Thus, higher contribution margin
ARPUs mainly in voice and led to sustained EBITDA margin. Meanwhile, rise in other income – a facet of exchange related services, the management gains recorded during the period – along with reduced cost of borrowing, helped the intends to build its footprints in company in registering significant profit before taxation YoY (CY14: PKR 7,519mln; data services, thereby sustaining CY13: PKR 8,062mln). To keep the leveraging of PMCL in check, the company converted healthy EBITDA margins. The management fee payable to sponsors (GTH: PKR 22,089mln; IWCPL: PKR 136mln; company plans to gradually Equity conversion: PKR 15,984mln) into equity in the last quarter of CY14. However, as a expand outreach of its 3G prudent measure, the company created a provision against tax benefits taken during prior network. The expansion would years, and it may be reversed going forward. Resultantly, PMCL registered net loss of PKR mainly be funded through debt. 1,438mln (CY13: net loss of PKR 5,947mln).
ƒ
Business Strategy: Given the continuing competition among the industry players, This is likely to impact the debt service coverages in the shortARPUs may remain under pressure. Moreover, higher addition of 3G subscribers by other term, as leveraging increases. players and regulatory verifications may pose challenge to Mobilink in sustaining its
However, healthy cashflows are expected to provide respite to the largest share. The management being aware of the same is making efforts, aligning its market strategy to changing market dynamics. This is expected to help the company to sail financial profile. The ratings through these challenging times. Moreover, PMCL is embarked on exploring business continue to draw comfort from, i) potential in mobile financial services, through its group company – Waseela Microfinance sponsors support - recent conversion of management fee
Bank. This would support the company’s revenues through additional income avenues.
ƒ
Working Capital Management: On account of revised capex payment terms, the payable into equity is a reflection company’s creditors increased significantly. Major payments would fall due in CY15. The of it, and ii) availability of company continues to enjoy negative net cash cycle (Dec14: -89days, Dec13: -64days, supplier credit. The company's Dec12: -69days,) mainly benefiting from stretched creditors’ days.
ƒ
Coverages and Cashflows: The company maintains reasonably good cash conversion association with one of the largest telecom operators - Vimplecom - ratio; though it has slightly reduced in recent years. FCFO of the company remained is a key rating factor. largely sustained (CY14: PKR 32,760mln; CY13: PKR 33,984mln) as higher EBITDA earnings were mitigated by rising tax payment during CY14. Furthermore, the new debt,
K EY R ATING D RIVERS acquired to finance license acquisition and capex in CY14, have reduced the coverages.
With additional debt of PKR 15bln in CY15, PMCL’s coverages would come down
The ratings are dependent on the business margins and ii) generate further. Nevertheless, with upcoming debt repayments, the company is likely to fix its company’s ability to: i) sustain its financial risk profile over the medium term.
ƒ
Capital Structure: PMCL has relatively leveraged capital structure and would increase sufficient cashflows to keep the further in the current year. However, comfort is drawn from the management’s plan to coverages at comfortable level. deleverage its balance sheet after CY15.
Meanwhile, support of the
ƒ
Profile: PMCL, country’s largest cellular service provider, is operating under the brand sponsor – operationally and company. name of “Mobilink”. PMCL commenced its operations in August 1994. PMCL is a wholly financially – would remain negative implications for the owned subsidiary of Global Telecom Holding (GTH), which in turn is majority owned by important. Any adverse changes business profile, may have world’s seventh largest telecom group – VimpelCom Limited. VimpelCom is rated Ba3 by in the competitive landscape, impacting the company’s
Moody’s.
ƒ
Governance and Management: PMCL’s eight member board is dominated by professionals from GTH. Mr. Jeffrey Hedberg, the newly appointed CEO of Mobilink, has more than twenty years of experience, majorly in telecom sector. Though no board committee exists, the sponsor through matrix reporting structure keeps control and provides strategic guidance to the company.
P AKISTAN M OBILE C OMMUNICATIONS L IMITED
April 2015 www.pacra.com

The Pakistan Credit Rating Agency Limited
Pakistan Mobile Communications Limited
BALANCE SHEET
Non-Current Assets
Investments (Others)
Current Assets
Inventory (Finished Goods)
Trade Receivables
Other Current Assets
Cash & Bank Balances
Total Assets
Debt
Short-term
Long-term (Inlc. Current Maturity of long-term debt)
Trade Payables
Due to Associates
Provision for Taxation
Other Liabilities
Shareholder's Equity
Total Liabilities & Equity
INCOME STATEMENT
Turnover
Gross Profit
Operating Profit
Other Income
Financial Charges
Taxation
Net Income
Cashflow Statement
Free Cashflow from Operations (FCFO)
Net Cash changes in Working Capital
Net Cash from Operating Activities
Net Cash from InvestingActivities
Net Cash from Financing Activities
Net Cash generated during the period
Closing Balance of Cash & Equivalents
Ratio Analysis
Performance
Turnover Growth
Gross Margin
EBITDA Margin
Net Margin
ROE
Coverages
Debt Service Coverage
1. (FCFO/Gross Interest+CMLTD) (X)
2. (FCFO/Gross Interest+CMLTD+Uncovered STB) (X)
Interest Coverage
1. (FCFO/Gross Interest) (X)
2. (EBITDA/Gross Interest) (X)
31-Dec-14
Annual
Telecommunication
Financials (Summary)
PKR mln
31-Dec-13
Annual
31-Dec-12
Annual
137,047
5,301
11,553
222
1,980
3,821
5,530
153,901
98,781
6,292
17,074
250
1,960
3,943
10,921
122,147
116,154
7,847
19,731
676
2,290
10,217
6,549
143,732
40,875
-
40,875
20,672
136
4,943
52,331
34,944
153,901
20,519
23
20,496
13,839
18,940
60
48,396
20,393
122,147
49,640
500
49,140
16,143
12,762
-
38,870
26,317
143,732
92,379
28,029
7,193
3,138
(4,473)
( ,
20,681
5,530
)
(1,438)
32,760
10,758
40,269
(67,840)
(6,891)
-7.1%
30.3%
40.1%
-1.6%
-4.6%
2.5
0.5
7.3
8.3
(8,109)
99,394
25,158
(3,711)
2,809
,
(5,947)
33,984
19,511
49,053
(12,534)
(30,647)
5,872
12,421
-2.4%
25.3%
35.4%
-6.0%
-26.8%
2.1
0.8
4.2
4.3
101,871
38,504
11,205
1,469
(9,363)
( ,
641
36,445
)
(1,546)
28,845
(19,302)
(5,347)
4,196
6,549
13.7%
37.8%
36.6%
0.6%
2.4%
0.9
0.6
3.9
4.0
Liquidity and Cashflows
Current ratio (X)
Net Cash Cycle (Inventory Days + Receivable Days - Payable Days)
Capital Structure (Total Debt/Total Debt+Equity)
Pakistan Mobile Communications Limited
Apr-15
0.2
-88.8
53.9%
0.3
-63.6
50.2%
0.3
-68.7
65.4% www.pacra.com

The Pakistan Credit Rating Agency Limited
Credit rating reflects forward-looking opinion on credit worthiness of underlying entity or instrument; more specifically it covers relative ability to honor financial obligations. The primary factor being captured on the rating scale is relative likelihood of default.
L ONG T ERM R ATINGS
AAA Highest credit quality. Lowest expectation of credit risk.
Indicate exceptionally strong capacity for timely payment of financial commitments.
AA+ Very high credit quality.
Very low expectation of credit risk.
AA
Indicate very strong capacity for timely payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
AA-
S HORT T ERM R ATINGS
A1+: The highest capacity for timely repayment.
A1: .
A strong capacity for timely repayment.
A+
A
A-
High credit quality.
Low expectation of credit risk.
The capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be vulnerable to changes in circumstances or in economic conditions.
BBB+
BBB
BBB-
Good credit quality.
Currently a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances or economic conditions are more likely to impair this capacity.
BB+
BB
BB-
B+
B
B-
Moderate risk.
Possibility of credit risk developing.
There is a possibility of credit risk developing, particularly as a result of adverse economic or business changes over time; however, business or financial alternatives may be available to allow financial commitments to be met.
High credit risk .
A limited margin of safety remains against credit risk. Financial commitments are currently being met; however, capacity for continued payment is contingent upon a sustained, favorable business, and economic environment.
A2: A satisfactory capacity for timely repayment. This may be susceptible to adverse changes in business, economic, or financial conditions.
A3: An adequate capacity for timely repayment. Such capacity is susceptible to adverse changes in business, economic, or financial conditions.
B: The capacity for timely repayment is more susceptible to adverse changes in business, economic, or financial conditions.
CCC
CC
C
Very high credit risk .
“CCC” Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. “CC” Rating indicates that default of some kind appears probable. “C” Ratings signal imminent default.
C: An inadequate capacity to ensure timely repayment.
D
Obligations are currently in default.
Rating Watch
Alerts to the possibility of a rating change subsequent to, or in anticipation of, a) some material identifiable event and/or b) deviation from expected trend. But it does not mean that a rating change is inevitable. Rating Watch may carry designation – Positive (rating may be raised, negative (lowered), or developing
(direction is unclear). A watch should be resolved within foreseeable future, but may continue if underlying circumstances are not settled.
Outlook (Stable, Positive, Negative,
Developing)
Indicates the potential and direction of a rating over the intermediate term in response to trends in economic and/or fundamental business/financial conditions. It is not necessarily a precursor to a rating change.
‘Stable’ outlook means a rating is not likely to change. ‘Positive’ means it may be raised.
‘Negative’ means it may be lowered. Where the trends have conflicting elements, the outlook may be described as ‘Developing’.
Suspension Withdrawn
It is not possible to update A rating is withdrawn an opinion due to lack of requisite information. on a) termination of rating mandate, b)
Opinion should be resumed in foreseeable future. However, if this does not happen within six (6) months, a suspended rating should be considered withdrawn. cessation of underlying entity, c) the debt instrument is redeemed, d) the rating remains suspended for six months, or e) the entity/issuer defaults.
Disclaimer: PACRA's rating is an assessment of the credit standing of an entity/issue in Pakistan. They do not take into account the potential transfer / convertibility risk that may exist for foreign currency creditors. PACRA's opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security’s market price or suitability for a particular investor.

Name of Issuer
Name of Issue
Sector
Type of Relationship
Purpose of the Rating
Ammortization Schedule
Rating History
Instrument Details
Rating Methodology
Rating Analysts
Rating Team Statement
Disclaimer
Probability of Default (PD)
Regulatory and Supplementary Disclosure
Pakistan Mobile Communications Limited (PMCL)
PMCL | Listed Secured TFC III
Communication
Solicited
Independent Risk Assessment
See Annexure A
Dissemination
Date
19-May-14
15-Apr-13
20-Apr-12
28-Mar-12
Long Term
AA-
AA-
AA-
AA-
Outlook
Stable
Stable
Stable
Stable
Action
Maintain
Maintain
Initial
Preliminary
Nature of Instrument
Listed Secured TFC
Size of Issue
(PKR mln)
Tenor (yrs)
2,000 4
Trustee
JS Bank
Limited
Nature of Security
1. 1st pari passu floating charge on all present and future assets.
Security Details
Quantum (PKR mln)
25% over and
2. 1st pari passu floating charge on future
and present collections of the Company above total value
25% over and above total value
Nature of Assets
Moveable Fixed Assets
Receivables of the
Company from Debtors
Book Value of
Assets (PKR mln)
100,000
100,000
Corporate Rating Methodology
Abdul Sami abdul.sami@pacra.com
(92-42-35869504)
Aisha Khalid aisha@pacra.com
(92-42-35869504)
Rating Procedure
Rating is an opinion on relative credit worthiness of an entity or debt instrument. It does not constitute recommendation to buy, hold or sell any security. The rating team for this assignment does not have any beneficial interest, direct or indirect in the rated entity/instrument.
Rating Shopping
PACRA maintains principle of integrity in seeking rating business.
PACRA has used due care in preparation of this document. Our information has been obtained directly from the underlying entity and public sources we consider to be reliable but its accuracy or completeness is not guaranteed. PACRA shall owe no liability whatsoever to any loss or damage caused by or resulting from any error in such information.
Conflict of Interest
PACRA, the analysts involved in the rating process, and members of its rating committee do not have any conflict of interest relating to the credit rating done by them
The analysts involved in the rating process do not have any interest in a credit rating or any of its family members has any such interest
The analysts and members of the rating committees including the external member members have disclosed all the conflict of interest, including those of their family members, if any, to the Compliance Officer PACRA
The analysts or any of its family members do not buy or sell or engage in any transaction in any security which falls in the analyst's area of primary analytical responsibility. This is, however, not applicable on investment in securities through collective investment schemes. PACRA has established appropriate policies governing investments and trading in securities by its employees
PACRA may provide consultancy/advisoryservices or other services to any of its clients or to any of its clients' associated companies and associated undertakings that is being rated or has been rated by it. In such cases, PACRA has adequate mechanism in place ensuring that provision of such services does not lead to a conflict of interest situation with its rating activities
PACRA receives compensation from the entity being rated or any third party for the rating services it offers. The receipt of this compensation has no influence on PACRA's opinions or other analytical processes. In all instances, PACRA is committed to preserving the objectivity, integrity and independence of its ratings. Our relationship is governed by two distinct mandates i) rating mandate - signed with the entity being rated or issuer of the debt instrument, and ii) fee mandate - signed with the payer, which can be different from the entity
PACRA ensures that the credit rating assigned to an entity or instrument should not be affected by the existence of a business relationship between PACRA and the entity or any other party, or the non-existence of such a relationship
Surveillance
PACRA monitors all the outstanding ratings continuously and any potential change therein due to any event associated with the rated entity/ issuer, the security arrangement, the industry etc, is disseminated to the market, in a timely and effective manner, after appropriate consultation with the entity/issuer
PACRA reviews all the outstanding ratings on annual basis or as and when required by any stakeholder (including creditor) or upon the occurrence of such an event which requires to do so
PACRA initiates immediate review of the outstanding rating(s) upon becoming aware of any information that may be reasonable be expected to result in any change (including downgrade) in the rating
Reporting of Misconduct
PACRA has framed and implemented whistle-blower policy encouraging all employees to intimate the compliance officer any unethical practice or misconduct relating to the credit rating by another employees of the company that came to his/her knowledge. The Compliance Officer reports to the BoD and SECP
Confidentiality
PACRA has framed a confidentialitypolicy to prevent abuse of the non-public information by its employees and other persons involved in the rating process, sharing and dissemination of the non-public information by such persons to outside parties
Where feasible and appropriate, prior to issuing or revising a rating, PACRA informs the issuer of the critical information and principal considerations upon which a rating will be based and provide the opportunity to clarify any likely factual misperception or other matter that PACRA would wish to be made aware of in order to produce a fair rating. PACRA duly evaluates the response. Where in a particular circumstance PACRA has not informed the entity/issuer prior to issuing or revising a rating, it informs the entity/issuer as soon as practical thereafte
Prohibition
None of the information in this document may be copied or otherwise reproduced, stored or disseminated in whole or in part in any form or by any means whatsoever by any person without PACRA’s written consent. PACRA reports and ratings constitute opinions, not recommendations to buy or to sell
PACRA's Rating Scale reflects the expectation of credit risk. The highest rating has the lowest relative likelihood of default (i.e, probability). PACRA's transition studies capture the historical performance behavior of a specific rating notch. Transition behavior of the assigned rating can be obtained from PACRA's Transition Study available at our website. (www.pacra.com). However, actual transition of rating may not follow the pattern observed in the past www.pacra.com

Regulatory and Supplementary Disclosure
Repayment Schedule TFC III
TFC III Amount (PKR mln) 2,000
Period (years) 4
Repayment Quarterly
Pricing 3 K + 2.65%
Pricing effective from July-14 3 K + 2.00%
Pakistan Mobile Communications Limited | TFC III | Redemption Schedule
Annexure A
18-Apr-12
18-Jul-12
18-Oct-12
18-Jan-13
18-Apr-13
18-Jul-13
18-Oct-13
18-Jan-14
18-Apr-14
18-Jul-14
18-Oct-14
18-Jan-15
18-Apr-15
18-Jul-15
18-Oct-15
18-Jan-16
18-Apr-16
Due Date
Principle*
Opening
Principal
Principal
Repayment
PKR in mln
2,000
150
150
150
Due Date
Markup/
Profit
Markup/Profit Rate
50 18-Jul-12 3 Month Kibor +2.65%
50 18-Oct-12 3 Month Kibor +2.65%
50 18-Jan-13 3 Month Kibor +2.65%
50 18-Apr-13 3 Month Kibor +2.65%
100 18-Jul-13 3 Month Kibor +2.65%
100 18-Oct-13 3 Month Kibor +2.65%
100 18-Jan-14 3 Month Kibor +2.65%
100 18-Apr-14 3 Month Kibor +2.65%
150
200
200
200
200
2,000
18-Jul-14
18-Jul-15
18-Oct-15
18-Jan-16
18-Apr-16
3 Month Kibor +2.00%
18-Oct-14 3 Month Kibor +2.00%
18-Jan-15 3 Month Kibor +2.00%
18-Apr-15 3 Month Kibor +2.00%
3 Month Kibor +2.00%
3 Month Kibor +2.00%
3 Month Kibor +2.00%
3 Month Kibor +2.00%
Markup/Profit
Payment
(Expected Kibor constant at
9.7%)
Installment
Payable
PKR in mln
73
72
59
55
54
51
48
44
41
37
32
28
23
18
12
6
651
123
122
109
105
154
151
148
144
191
187
182
178
223
218
212
206
2,651
Principal
Outstanding
1,400
1,250
1,100
950
800
600
400
200
0
2,000
1,950
1,900
1,850
1,800
1,700
1,600
1,500