• Implied blended rate of 9.8% not as exciting GTH said its fully-owned unit, GTH Finance B.V., will issue a dual tranche USD1.2 billion bond composed of a USD500 million 6.25% senior note due 2020 and a USD700 million 7.25% senior note due 2023. The bonds are guaranteed by VimpelCom (VIP) for a guarantee fee of 3.0% p.a. each, meaning that GTH will pay 9.25% p.a on the USD500 million tranche and 10.25% p.a on the USD700 million tranche. This is somewhat disappointing as the implied blended rate for the total facility is 9.83% p.a., which is less than the 6.875 - 7.875% range quoted by Bloomberg. Yesterday we issued a report that we were positive on the bond pricing, but the actual price has tempered our view and we see it as only marginally positive. The entire proceeds of the offering will be used to repay VIP’s shareholder loan, and the expected settlement date for the offering is 26 April 2016.
• Broadly in line with our conservative estimate, minor interest saving The blended rate of 9.83% falls in line with the refinancing rate of 10% we assumed in our model starting 2017e. Hence, we expect that the bond refinancing will lead to cUSD20 million interest expense saving in 2016 and a negligible interest saving in 2017 and thereafter. We continue to expect GTH to turn profitable at the earnings level starting in 2016.
• Reiterate Buy on cheap valuation, restructuring, and Pakistan merger Despite a 53% and 34% rally in GTH’s local and GDR listings YTD, respectively, we remain buyers of GTH as the stock continues to trade at an attractive 2016e EV/EBITDA of 4.3x versus 5.5x for the average of our MENA telecoms coverage. Moreover, the ongoing transformation programme should begin to yield positive results by end-2016 or early-2017, while the merger in Pakistan (to be concluded end-2016) should be beneficial for the company’s competitive advantage in that market, in our view. We also still see GTH as an acquisition target given its cheap valuation and given that either VIP or its ultimate majority shareholder, LetterOne, could be interested to buy out minority shareholders, we think.

Omar Maher
Karim Riad