Press Release

JCR-VIS Revises Rating of TFC Issue of Telecard Limited

Karachi, May 05, 2006: JCR-VIS Credit Rating Co Ltd (JCR-VIS) had placed the medium-to-long term rating of A (Single A) assigned to the listed TFCs of Rs 2.4bn issued by Telecard Limited (Telecard) on ‘Rating Watch’ following the request by wireless local loop operators association (of which Telecard is a member) to the government to defer balance 50% payment due from these companies on account of frequency spectrum in line with what has been offered to the GSM companies. Since the frequency spectrum was the key credit enhancing security underlying the TFC the final decision on this request was expected to have substantial bearing on the assigned rating. Pending such a decision, the Trustee to the TFC issue had also deferred disbursement of TFC proceeds of Rs 1.6 bn which had been originally earmarked for the payment of the frequency spectrum fee.

On April 10, 2006, the Pakistan Telecommunication Authority notified Telecard of the decision of the Economic Coordination Committee of the Federal Cabinet to grant a moratorium of four years on the payment on the balance spectrum fee, although the complete scheme of payment is under consideration to be communicated at a later date. GSM licensees have previously been offered a similar arrangement whereby fifty percent of their license fee payment was deferred over fourteen years including an initial four year moratorium. The management of Telecard is of the opinion that they will also receive similar terms. This decision will dilute the value of the security available to the TFC holders, since in any action to enforce the security, the future bidder for the frequency spectrum would take into account the level of deferred payment that would be required to be made at a later date and consequently adjust the present value accordingly, while giving due consideration to the fact that the government has now confirmed that no further licenses will be issued for WLL or GSM for the next seven years.

Prima facie the moratorium should have resulted in a reduction of the outstanding debt to the extent of the deferred disbursement amount of the TFC. However, Telecard has been unable to roll out its network expansion at the originally planned rate as a result of which the revenue targets could not be achieved. The management plans to draw down the undisbursed TFC funds in order to meet planned capital expenditure requirements and reduction of debt. Further, the management of Telecard has substantially adjusted its initial projections for the next three years in line with the results attained to-date, reflecting the intensifying level of competition in the LDI business specifically and the telecommunication industry generally, and the company’s access to funding.

In view of the above developments, JCR-VIS is revising the medium-to-long term rating of the TFC issue to BBB (Triple B). The rating will continue to be on ‘Rating Watch’ pending the decision of the Trustee of the TFC issue whether or not to release undisbursed TFC proceeds. The future direction of the ratings will depend upon the progress of the management’s various strategies, such as growing the virtual network operator segment, concentrating on the high-revenue payphone sector, re-launch of the GO CDMA retail brand and future growth of the LDI business.

For further information on this rating announcement, please contact Mr. Safdar Kazi (safdar@jcrvis.com.pk / Ext: 221) or Mr. Saad Ahmed Madani (saad@jcrvis.com.pk / ext: 219) at 5671822/5671833/5680996 or fax to 5681105/5671600.

Faheem Ahmad
President & CEO

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2006 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .