Fitch Rates Indonesia-based Protelindo's IDR1trn Bond 'AA-(idn)'

Mon Jan 27, 2014 11:49pm EST

(The following statement was released by the rating agency) JAKARTA/SINGAPORE/SYDNEY, January 27 (Fitch) Fitch Ratings has assigned PT Profesional Telekomunikasi Indonesia's (Protelindo) proposed issuance of up to IDR1trn bonds a National Rating of ‘AA-(idn)’. Protelindo, which owns and operates wireless communication towers, will use the proceeds to repay its rupiah-denominated bank loans. The bonds are rated at the same level as Protelindo's National Long-Term Rating of 'AA-(idn)' as they constitute direct, unconditional, and senior unsecured obligations of the company. The proposed bonds will rank equally with all the unsecured obligations of the company. ‘AA’ National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherently differs only slightly from that of the country’s highest rated issuers or obligations. KEY RATING DRIVERS Stable and Predictable Cash Flows: The rating of Protelindo reflects its solid business model with stable and predictable cash flows arising from long-term non-cancellable contracts (10-12 years). At end-September 2013, the company recorded IDR28.8trn in contracted revenue. The rating also reflects the company’s strong EBITDA margin of 82.6% in 3Q13 and its strong access to funding from both local and foreign banks. Manageable Financial Leverage: At end-September 2013, Protelindo’s funds flow from operations (FFO)-adjusted net leverage remained appropriate for its rating at 3.5x (2012: 4.2x). This is due to the management’s commitment to keep net debt/quarterly annualised EBITDA at around 3.0x-3.5x and the company’s ability to sustain its high margin by increasing co-locators in its towers. Tower Growth Continues: Although Fitch does not expect Protelindo’s leverage to go above 4.0x on a sustained basis, the agency also believes that leverage is unlikely to fall below 3.0x. This is because the company is likely to continue acquiring towers as part of its growth strategy. The company had 9,379 towers at end-3Q13, up from 8,460 at end-2012. In its forecast, Fitch assumes an annual acquisition budget of IDR1trn. Risk from Tenants: A key rating risk for Protelindo is its exposure to small unprofitable Indonesian telcos such as PT Bakrie Telecom (C) and PT Smartfren Telecom Tbk (CC(idn)). Taken together, these struggling CDMA operators accounted for 15% of Protelindo’s revenue at 3Q13. Based on the agency’s analysis, defaults from these operators could result in leverage rising above 4.0x, the threshold above which negative rating action may be considered, on a sustained basis. In addition, Protelindo also derives 36% of its revenue at end-September 2013 from PT Hutchison 3 Indonesia (Hutchison 3 Indonesia), a subsidiary of Hutchison Whampoa Limited (HWL, A-/Stable) and a GSM operator that aggressively competes in the data segment. However, the overall tenancy risk is mitigated by the agency’s view that telco operators generally consider tower lease obligations as senior to debt because of the need to continue providing service to subscribers. RATING SENSITIVITIES A positive rating action is not expected in the short term as the company is unlikely to deleverage significantly as it invests to maintain growth. Negative: Future developments that could individually or collectively lead to negative rating actions include: - Weakening of HWL's commitment to Hutchison 3 Indonesia leading to the latternot honouring its contractual commitments to Protelindo. - A debt-funded acquisition of another tower portfolio or lease defaults by weaker telcos leading to deterioration in FFO-adjusted net leverage to over 4.0x on a sustained basis Contacts: Primary Analyst Olly Prayudi Analyst +62 21 29886812 Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta 12940 Secondary Analyst Nitin Soni Associate Director +65 67967235 Committee Chairperson Steve Durose Senior Director +61 2 8256 0307 Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. Applicable criteria, ' Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage’, dated 5 August 2013 and ‘National Scale Ratings Criteria’, dated 30 October 2013, both are available at www.fitchratings.com. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available at www.fitchratings.com. 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