A subscription offer after more than a year

By SHABBIR H. KAZMI
Apr 03 - 09, 2000

WorldCALL Payphohes Limited (WorldCALL) was incorporated on December 14, 1995 and received Certificate of commencement of business on April 21, 1996. The main activity of the Company is installation, operation and maintenance of a countywide smart card payphones network.

It is important to note that this public offer has come after a long period. In 1999 no new company made a public offer, only one company was listed in 1998 and the shares were floated by only four companies in 1997.

The Company has obtained licence to establish, operate and maintain card payphone service across the country, with local, NWD and 1SD calling facility from the Pakistan Telecommunication Authority (PTA). The licence has been issued for an initial period of 15 years, and may be extended, if the Company performs well, for a further period of 15 years. However, if PTA decides not to extend the licence beyond the initial term of 15 years then it will serve a notice to that effect to the Company at least one year prior to the expiry of the initial period.

First Capital Securities Corporation Limited (FCSC) is the main sponsor of the Company. FCSC is a leading investment and financial services company and is listed on all the three stock exchanges in Pakistan. FCSC's shareholders include Gulf Commercial Bank Limited, Al-Faysal Investment Bank, and a number of other domestic financial institutions. FCSC provides corporate finance, money market and brokerage services to domestic and international clients.

The recent public offer of WorldCALL for 97500,000 ordinary shares of the face value of Rs 10 each was at Rs l5 per share, including the premium of Rs. 5 per share, of the total value of Rs. 142,500,000 was fully underwritten.

The Company's head office is located in Lahore and its fifteen (15) regional offices are located in Lahore, Karachi, Rawalpindi, Islamabad, Gujranwala, Faisalabad, Multan, Peshawar, Sahiwal, Hyderabad, Quetta, Sukkur, D. I Khan, Jhelum and Abbotabad.

The Company primarily resells PTCL's services through its supervised and stand-alone payphones network. The customers purchase the card first and use it later. The Company is billed by PTCL equal to the actual card usage by the customers. The prepaid nature of the business results in quick cash flow generation and substantial reduction in collection risk. Additionally, the payphones start revenues soon as they are operational which means an investment payback period of less than two years approximately. It is due to these favourable business economics that the Company has managed to establish itself as a leading payphone network in a very short time.

As on December 31, 1997 the Company had 401 payphones in stock out of the total 5,699 payphones purchased as of that day. The remaining 5298 payphones have been installed in over 110 cities and towns. The purchased phones comprised 59l stand-alone and 5,108 supervised payphones. The installed payphones comprised 515 stand-alone and 4,783 supervised ones. The Company purchased payphones from various suppliers.

Expansionary plans to continue

WorldCALL intends to expand the coverage of its payphone network to include town and cities that do not contain adequate number of payphones to meet the local demand. For this purpose it is planning to purchase and install 8,000 payphones during the next 12 months. Out of these 8,000 new payphones, as per the PTA directives, 30 per cent will be stand-alone while the balance to be supervised payphones. For this purpose the Company has estimated a total expansion cost which will be primarily financed through the funds being raised from the Pre-IPO and public offer in addition to the cash generated from business operations.

Operating scenarios

In Pakistan, at present, there are ten payphone companies operating stand-alone and supervised payphone networks. These include WorldCALL, Telecard, TelTips and Telecom Foundation. Whereas major supervised payphones operators include WorldCALL, Call Point, Global Telecom, VTT, Supertel, Sachal and Ace Quality.

Valuation and outlook

The limited number of operators in each market should provide considerable protection to the industry as it learns new skills. False starts are inevitable. We remain enthusiastic about the growth of tele industry. It is necessary to introduce investors to investment thesis and valuation measures. It is important to understand key drivers of telecom stocks. Investors should be on the lookout for these issues in order to stay ahead of the curve once the pay card phone industry finally develops in Pakistan. The wireless telecom industry still appears very much fragmented. In the absence of industry information valuation measures are vulnerable to rapid industrial growth. In order to provide an insight as to the future prospects of such concerns it is necessary to highlight certain key areas, which need to be addressed by the players. There are six key criteria in making investment decision on telecom stocks: 1) early mover, 2) marketing 3) focus 4) scale, 5) scalability, and 6) management.