Fitch Ratings has upgraded Silknet JSC's Long-Term Issuer Default Rating (IDR) to 'BB-', from 'B+', with a Stable Outlook. Fitch no longer rates any debt issued by Silknet after the USD300 million senior unsecured notes were fully repaid. A full list of rating actions is below.

The ratings reflect Silknet's strong ties with its parent Silk Road Group Holding LLC (BB-/Stable), as the former guarantees the USD400 million Silkroad Eurobond, its stable market position as a strong number two telecoms operator in Georgia, and its positive free cash flow (FCF) generation. With most funding coming from the parent, external debt is small.

KEY RATING DRIVERS

Strong Ties With The Parent: We view ties between Silknet and its parent are strong, which allows us to equalise the ratings without application of the parent-subsidiary criteria. The company guarantees Silk Road's USD400 million Eurobond. The parent, on the other side, provides substantially all funding for Silknet, which we view as equally strong as providing a guarantee. Silkroad owns 95% of Silknet and intends to increase its shareholding.

Entrenched Telecoms' Market Positions: We expect Silknet to sustain its competitive positions in a highly consolidated but relatively stable and small market of 5.8 million mobile and 1.2 million internet retail customers. Georgia is predominantly serviced by Magticom and Silknet, two large operators, with Cellfie, the third largest, far behind and other smaller players holding just a fraction of the market. The Georgian communications regulator estimates that Silknet's revenue market shares were 35% in mobile and 34% in fixed broadband retail subsectors in 2Q25.

5G Spectrum Secured: Silknet managed to get sizable 5G spectrum in June 2025, which addressed its previous strategic disadvantage versus competitors. We view Silknet as having reached broad spectrum parity with its peers.

Cash Upstreamed To Parent: We project that Silknet will remain strongly cash flow generative, with most internally generated cash upstreamed to the parent. The company's EBITDA margins of above 55% and moderate capex requirements of below 25% of revenues propel its pre-dividend FCF margin close to 30%, solid for its rating level.

Supportive Macroeconomic Environment: Fitch revised the Outlook on Georgia's sovereign 'BB' rating to Stable from Negative in November 2025 on higher international reserves, reduced external imbalances and solid growth prospects. The country's ratings continue to reflect heightened political uncertainty and geopolitical risksamong other factors.

PEER ANALYSIS

Silknet's peer group includes emerging markets telecom operators Kazakhtelecom JSC (BBB-/Stable), Kcell JSC (BB+/Stable), Turkcell Iletisim Hizmetleri A.S. (BB-/Stable), Turk Telekomunikasyon A.S. (BB-/Stable), Uzbektelecom JSC (BB/Stable) and Telekom Srbija a.d. Beograd (B+/Positive).

Silknet benefits from its established customer franchise and the wide network of a fixed-line telecoms incumbent, combined with a strong mobile business similar to Kazakhtelecom's and Turk Telecomunikasyon. However, the former is smaller in size and is only the second-largest telecoms operator in Georgia.

FITCH’S KEY RATING-CASE ASSUMPTIONS

- Mid single-digit revenue growth on average in 2025-2028, with mobile rising ahead of broadband revenues

- Fitch-defined EBITDA margin of 58% in 2025, with gradually declining 56%-54% margins in 2026-2028, with content cost amortisation and subscriber acquisition cost amortisation treated as operating cash expenses, reducing EBITDA and capex

- Cash capex of below 25% including spectrum in 2025-2028

- FCF up-streamed to the parent

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- Negative rating action on Silk Road if ratings continue to be equalised with the parent's

- Weaker ties with the parent, mainly legal linkages but also in the event of weakening operating and strategic ties, suggesting that Silknet's IDR may be driven by its standalone credit profile (with a possibility of notching up for support), combined with:

- Higher external debt at Silknet and external EBITDA net leverage rising above 3x on a sustained basis without a clear path for deleveraging in the presence of big FX risks, and a significant reduction in pre-dividend FCF generation driven by competitive or regulatory challenges

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

- Positive rating action on Silk Road if ratings continue to be equalised with the parent's

- Weaker ties with the parent, especially legal linkages, suggesting the possibility of notching up from the group's consolidated credit profile combined with strong market leadership in key segments in Georgia while maintaining positive FCF generation, comfortable liquidity, improved corporate governance and low leverage

LIQUIDITY AND DEBT STRUCTURE

Silknet paid off its USD300 million Eurobond, with substantially all new funding provided by Silk Road.

ISSUER PROFILE

Silknet is the second-largest telecoms operator in Georgia, with over 30% market shares in mobile, broadband and pay-TV, supported by its incumbent fixed-line infrastructure across the country, with the exception of Tbilisi. Silknet is fully controlled by Silk Road.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS

Silknet's rating is equalised with that of Silk Road.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Sector Forecasts Monitor data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG CONSIDERATIONS

We changed Silknet's ESG Relevance score of '4' for Governance and Group Structure to '3' as we have more clarity on intra-group funding relationships between the company and its parent Silk Road, therefore, this factor no longer has a negative impact on the former's credit profile.

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.