Moody’s Investors Service has today extended the review for possible downgrade on Pakistan Mobilink Communications Limited (“Mobilink”) B2 local currency corporate family rating and Caa1 senior unsecured bond rating.
The extension of the review period reflects Moody’s ongoing concerns about Mobilink’s ability to meet its covenants under bank loan agreements particularly when covenants, as currently structured, step down in June 2010.
Moody’s would anticipate that Mobilink obtain any necessary consents for covenant amendments from lenders, including lines backed by the Export Credit Agencies, prior to the next test date. In addition, Moody’s also expects Mobilink’s parent, Orascom Telecom Holdings (“Orascom Telecom” — rated B2/negative) to forgo cash payment of management fees, as it did in 2009.
“The non-payment of management fees — equivalent to 6-7% of revenues — will provide Mobilink with additional liquid resources for debt service,” says Laura Acres, a Moody’s Vice President and Senior Credit Officer. “However, in the absence of any covenant amendment, it is Moody’s view that Mobilink will be unlikely to comply with the aggressive step down in covenant measures and as such the ratings will be pressured,” adds Acres, also Moody’s Lead Analyst for Mobilink.
The review will focus on Mobilink’s ability to negotiate covenants amendments with its bank creditors such that it can adhere to covenants without financial support from Orascom Telecom. Any failure to obtain a permanent amendment beyond the June 2010 test date will result in negative rating action for Mobilink. The review will also continue to examine the liquidity position of Orascom Telecom given Mobilink’s reliance on it for capital injections which are likely to be required in the event that covenants are not amended.
The last rating action was on 20th November 2009 when Mobilink’s B2 corporate family rating and Caa1 senior unsecured bond rating were placed on review for possible downgrade following a similar action on Orascom Telecom and the concern on Mobilink’s ability to comply with the bank loan covenants.