Riyadh: Tassnief has maintained long-term entity rating of “(A(pi))’’ (Single A unsolicited rating) and a short-term entity rating of “T-2” to Mobile Telecommunications Company Saudi Arabia. The Single A ratings reflect robust credit profile. Tassnief considers the rated issuer or issuance to hold high creditworthiness and thus low credit risk. The risk profile may vary 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 rating action reflects Mobile Telecommunications Company Saudi Arabia’s (‘Zain KSA’ or ‘Company’) established subscriber base, satisfactory network coverage and adequate business and financial risk profile. Ratings also incorporate a strong corporate governance framework supported by sound internal control framework, well-developed strategic planning process, and disposition towards transparency and disclosures. 

Zain KSA’s revenues have demonstrated an increasing trend during 2022, 2023 and within the current fiscal year. The momentum in revenue growth is driven by robust development in the consumer segment in addition to increased revenue from the enterprise segment. Going forward, positive momentum in revenue growth is projected to continue with the declaration to enhance 5G network coverage from 66 cities to 122 cities. The assessment of the financial risk profile reveals adequate capitalization and liquidity indicators; however, these metrics are comparatively less favorable when measured against industry peers. The quantum of free cashflow generation has demonstrated a declining trend, attributed to reduced cash flow from operations (CFO) and increased capital expenditures incurred during the current year. Declining CFO is a function of increasing receivables.  

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 a high level of competitive intensity due to saturated mobile penetration. Nevertheless, the mobile subscriber base has experienced growth this year and is projected to continue expanding at a robust pace throughout the rating horizon, driven by population growth resulting from the development of new cities, the relocation of regional headquarters to KSA, and targeted increase in the number of pilgrims. The Communication and Information Technology Commission (CITC) underscores the importance of fostering a supportive regulatory environment characterized by stability, predictability, and maturity in its policies. This approach is essential for promoting sustained growth and attracting investment in the telecommunication sector. The telecom sector is well-positioned to sustain its growth momentum in the coming period, driven by robust non-oil GDP growth, the ongoing expansion of G5 infrastructure, and an increased emphasis on adjacent markets, including complementary non-telecom businesses.

Rating Triggers: The ratings will continue to be influenced by enhancement of the company’s market position, as well as ongoing improvements in its profitability profile. Additionally, a significant increase in free cash flow generation and enhanced cash flow coverage ratios would serve as positive indicators for potential rating upgrades.

About the Company: Zain KSA holds a significant position as the third largest company in the telecommunication sector in the Kingdome of Saudi Arabia. The majority shareholding of the Company is controlled by Kuwait-based public Company 'Mobile Telecommunications Company KSCP ('Zain Group'). Zain Group itself is a prominent player in the mobile telecommunications and data services sector throughout the Middle East. Operating not only in Kuwait but also across multiple countries such as Saudi Arabia, Bahrain, Jordan, Oman, UAE, Sudan (North and South), and Iraq, the Group serves an extensive customer base of 46.6million across eight markets.    

For further information on this rating announcement, please contact Mr. Talha Iqbal at 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

TASSNIEF has conducted the exercise based on its approved Rating Methodologies and Policies in order to derive the credit rating opinion on MOBILE TELECOMMUNICATIONS COMPANY SAUDI ARABIA. The credit ratings and observations contained herein are solely statements of opinion and not statements of fact or recommendations to purchase, hold or sell any securities or make any other investment decisions. All analyses related to the press release are merely opinions of TASSNIEF on the rating date and are not a guarantee of future performance. © Copyright 2023 by TASSNIEF