Hong Kong, February 15, 2018 -- Moody's Investors Service has affirmed Banglalink Digital Communications
Limited's Ba3 corporate family rating and senior unsecured rating.
The outlook on the ratings is stable.
RATINGS RATIONALE
On 13 February, Banglalink announced that it had won 5.6
MHz of paired spectrum in the1800 MHz band and 5 MHz of paired spectrum
in the 2100 MHz band for a total cost of around $308.6 million,
excluding value added tax (VAT).
The company will fund this total cost through cash and its undrawn local
currency-denominated bank facility signed December 2017.
"Although debt levels may rise in conjunction with the funding of
its spectrum wins, the increase can be accommodated in the rating,
given Banglalink's solid liquidity position and relatively low leverage,"
says Annalisa DiChiara, a Moody's Vice President and Senior
Credit Officer.
In addition, the company announced that it will pay $35 million
to convert its existing spectrum holding in the 900 MHz and 1800 MHz bands
into technology neutral spectrum and also pay $1.2 million
to acquire its 4G/LTE license.
"The spectrum neutrality will allow Banglalink to double its 3G
network capacity, positioning it for continued growth and improvements
in its competitive position, particularly in light of the rising
level of competition amongst the top three players in Bangladesh.
In parallel, the 4G/LTE license will allow it to launch a high-speed
data network, which we view positively," adds DiChiara,
also the lead analyst for Banglalink.
According to the payment terms from the Bangladesh Telecommunication Regulatory
Commission, an upfront payment of 60% (around $185
million) -- along with the VAT -- is payable within
30 days of the auction.
The remaining 40% are payable over four years in equal installments.
The costs of the spectrum neutrality and the 4G/LTE license are also payable
within 30 days.
Banglalink entered into a floating rate term facilities agreement of BDT29.3
billion in December 2017, divided in two tranches. The first
tranche of BDT10.7 billion has a three year tenor and the second
tranche of BDT18.6 billion has a five year tenor.
The company has the option to increase its new bank facility to BDT40
billion from BDT29.3 billion. However, if the facility
is increased, we would expect the company to use the proceeds to
prefund a portion of its bonds maturing in May 2019, or call them.
Either approach would help reduce the associated refinancing risks.
Moody's estimates that Banglalink's leverage, as measured
by adjusted debt/EBITDA, will rise to approximately 2.0x
by the end of 2018 as the company's draws down on its available
credit facility to fund the spectrum purchases, ongoing capex and
further supplements to liquidity.
In addition, given the highly competitive nature of the industry
in Bangladesh, Moody's expects that pricing pressures will
persist over the next 12 months. However, Banglalink's
revenue growth will likely stabilize because of continued subscriber growth
as it benefits from its improved spectrum holding and coverage.
The outlook on the ratings is stable and our expectation is that Banglalink
will register adjusted EBITDA margins around 43%, while maintaining
leverage no higher than 2.0x over the next 12 months.
Moody's also expects the company to maintain sufficient liquidity
and to look to refinance its $300 million bonds due in May 2019
in a timely manner.
Upward pressure on the ratings could arise if the company maintains adjusted
debt/EBITDA below 2.0x while improving its market share,
without compromising its EBITDA margins, and its liquidity position.
Further stability and predictability with respect to Bangladesh's regulatory
environment would also need to be evident.
Downward pressure on the ratings could emerge if Banglalink (1) experiences
a significant deterioration in market share or a material slowdown in
revenue and earnings growth, or both; (2) encounters difficulty
in accessing capital to fund growth or repay or refinance debt,
as and when it is due; or (3) implements aggressive investment or
shareholder return policies.
Specific indicators that we would consider for a downgrade include (1)
an adjusted EBITDA margin below 40%; (2) adjusted debt/EBITDA
above 3.0x; and (3) negative adjusted free cash flow on a
sustained basis.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Banglalink Digital Communications Limited, established in 1998,
is the third-largest mobile operator in Bangladesh (Ba3 stable)
by subscribers, which totaled 32.4 million at the end of
2017. This number was equivalent to a market share of around 22.3%.
The company's subscribers are mostly prepaid users.
Banglalink is 99.99%-owned indirectly by GTH through
Telecom Ventures Limited (TVL). GTH is an Egypt-based telecommunications
operator, which is in turn 57.7% owned by VEON Ltd.
(Ba2 stable), a leading international telecommunications company
which operates mobile networks in high growth markets in Africa and Asia.
It has a total population under license of approximately 400 million.
GTH operates mobile networks in Algeria, Pakistan, and Bangladesh.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Annalisa Di Chiara
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
