The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings GmbH (Scope) has assigned a BB-/Stable issuer rating to Georgia-based mobile operator Cellfie Mobile LLC.

Rating rationale

Cellfie's business risk profile, assessed at BB, is mainly supported by good profitability (EBITDA margin after leases of 33% in 2022). This is in line with that of most large European incumbent telecommunications operators but significantly below larger Georgian operators. The business risk profile is also supported by the low cyclicality of telecommunications services. Cellfie’s market share moderately supports the rating, given a number three position in Georgia with 25% of the country’s subscribers, although it only has 16% of national mobile retail revenues. Diversification is weak as Cellfie only offers mobile services in a single country.

The financial risk profile, assessed at BB, is supported by low leverage, with a Scope-adjusted debt/EBITDA anticipated at 1.3x at YE 2023. Following the company’s structural and financial reorganisation in 2023, gross debt is expected to be limited to GEL 112m of which GEL 27m of leases. Scope notes that lease liabilities only represent about two years of lease payments, a rather low level. In parallel, interest coverage is good, and EBITDA interest cover is expected to be above 4x in the coming years. The company is implementing a significant capex programme to increase its market coverage and the capacity of its mobile network. The programme also includes a 5G roll-out as Cellfie was the only operator in Georgia to receive 5G spectrum. Scope thus expects free operating cash flow to remain weak for some time, with a Scope-adjusted FOCF/debt of close to 0% in the coming years. The company is not expected to pay any dividends until 2026. Liquidity is deemed adequate over the next few years.

The issuer rating also incorporates a one-notch negative adjustment for peer comparison, as Cellfie is noticeably smaller and has a weaker marker position than relevant peers. Scope did not access the financial accounts of Cellfie’s parent companies as these companies do not engage in financial reporting. Scope believes that any potential cash outflows from the company are effectively safeguarded by restrictions on transactions involving “affiliated persons” potentially disclosed in debt documentation.

Outlook and rating-change drivers

The Outlook is Stable and incorporates progressive improvements in revenue and profitability while the company makes significant capex and pays no dividends.

A positive action could occur if the company improved its competitive positioning (market share and diversification), or if the negative rating adjustment pertaining to peer context was withdrawn. Scope sees both situations as remote.

A negative action could occur if leverage – as measured by Scope-adjusted debt/EBITDA – remained above 2x as a result of lower-than-anticipated profitability and/or higher capex.

Stress testing & cash flow analysis
No stress testing was performed. Scope Ratings performed its standard cash flow forecasting for the company.

Methodology
The methodology used for this Credit Rating and Outlook, (General Corporate Rating Methodology, 16 October 2023), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Rated Entity and/or its Related Third Parties participated in the Credit Rating process.
The following substantially material sources of information were used to prepare the Credit Rating: public domain, the Rated Entity and Scope Ratings' internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting the Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Rating and Outlook and the principal grounds on which the Credit Rating and Outlook are based. Following that review, the Credit Rating and Outlook were not amended before being issued.

Regulatory disclosures
This Credit Rating and Outlook are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Rating and Outlook are UK-endorsed.
Lead analyst: Jacques de Greling, Director
Person responsible for approval of the Credit Rating: Sebastian Zank, Managing Director
The Credit Rating/Outlook were first released by Scope Ratings on 4 December 2023. 

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings.

Conditions of use/exclusion of liability
© 2023 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.