Riyadh: SIMAH Rating Agency (Tassnief) has maintained long-term entity rating of “(AA-(pi))’’ (Double A minus unsolicited rating) and a short-term entity rating of “T-2” to Etihad Etisalat Company (Mobily). The AA- ratings reflect robust credit profile. Tassnief considers the rated issuer to hold very high creditworthiness and thus very low credit risk. The risk profile may vary slightly with changes in economic / sector conditions.

The unsolicited ratings, denoted by a ‘pi’ subscript, make use of analytical procedures that are parallel to traditional credit ratings, but differ in that they are based on public disclosures made available by companies, as well as other secondary sources. The ‘pi’ ratings do not carry an outlook.  The ‘pi’ ratings are reviewed annually based on the latest financial statements but may be reviewed earlier if a major event that may affect an entity’s credit quality occurs. The rated entity has not participated in the unsolicited credit rating and the rating has not been disclosed to the rated entity prior to the announcement.

Rating Rationale: The assigned rating reflects Etihad Etisalat Company’s established market position, satisfactory network coverage, adequate business risk and strong financial risk profile. The ratings reflect the presence of a robust corporate governance framework, bolstered by an effective internal control system and comprehensive strategic planning process. Additionally, ratings take into account improvement observed across key financial metrics throughout 2023 and into the current year.

The financial profile has shown continued improvement, particularly in terms of leverage and coverage ratios. Interest bearing debt to equity has consistently declined over the years from 1.08x at end-2019 to 0.54x at end-June 2024. Similarly, total debt to EBITDA was reported at 1.48x (2021: 2.44x) at end-June 2024. The liquidity profile of the Company is supported by robust cash flow generations. Besides healthy cash flow generation, the liquidity profile is strengthened by a favorable working capital cycle, as evidenced by the robust historical conversion of Fund Flow from Operations into Cash Flow from Operations, even amidst the growing contribution of the enterprise business segment which represented 22% (2020:14%) of total revenues in 2023. Moreover, quantum of free cash flow generation has also witnessed healthy growth.

The telecommunications sector's industry risk profile is characterized by low revenue cyclicality (stable utility-like demand characteristics), favorable demographics (young population with high smartphone and social media penetration), and highly competitive intensity given saturated mobile penetration. However, the mobile subscriber base is likely to grow at a healthy pace over the rating horizon, driven by population growth due to the development of new cities, shifting of regional headquarters to KSA, and targeted increase in the number of pilgrims to 30 million by 2030. The regulator, the Communication and Information Technology Commission (CITC), strongly emphasizes enabling the regulatory environment, as reflected in stability, predictability, and maturity in regulatory policies supporting sustained growth and investment in the telecom sector. Overall, economic growth, continued expansion of 5G infrastructure, and a greater focus on adjacencies (complementary non-telecom business), the telecom sector is well-positioned to continue its growth momentum going forward. 

Rating Triggers: Ratings would remain dependent on the enhancement of market position, successful execution of business strategy while sustaining recent improvement in financial metrics in terms of profitability, liquidity and capitalization. 

About the Company: Mobily is the second largest player in the telecom sector in KSA. As per Tassnief estimates, the Company has a market share of around 17% in terms of revenues while market share in terms of subscribers is higher. The Company's major shareholders consist of Etisalat Emirates Corporation (‘Etisalat Group' or etisalat by e&). Etisalat Group is a telecommunications service provider headquartered in Abu Dhabi. With a history spanning over four decades, the Group has grown to serve 170 million subscribers across 32 countries in the Middle East, Asia, and Africa.

For further information on this rating announcement, please contact Mr. Talha Iqbal by email at RS@Tassnief.com.

RELATED CRITERIA AND METHODOLOGY

Rating Methodology for Corporate (v.2. 2019) can be found on the website: www.tassnief.com