(Repeat for additional subscribers)
July 8 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned PT Tower Bersama Infrastructure Tbk a National Long-Term rating of ‘AA-(idn). The Outlook is Stable.
Key Rating Drivers
Solid credit profile: TBI’s credit strengths are its ability to generate predictable cash flows, strong counterparty tenant mix and a high operating EBITDAR margin (Q113: 82%). The rating is also supported by high barriers to entry as the Indonesian telco regulator prohibits non-Indonesians from holding majority stakes in tower companies.
Rating comparable to Indonesian peers: Compared with PT Profesional Telekomunikasi Indonesia (Protelindo, BB/AA-(idn)/Stable), TBI’s better quality tenant mix offsets its weaker balance sheet. TBI derived about 73.4% of its Q113 revenue from investment-grade telcos compared with Protelindo’s 35%, while TBI’s 2013 funds from operations (FFO)-adjusted net leverage will be weaker at around 4.0x-4.5x than Protelindo’s 3.0x-3.5x.
Strong profitability and discretionary capex: TBI’s operating EBITDAR margin will remain above 80% in the medium term due to locked-in contracts with in-built escalation clauses and a low operating cost structure. In addition, incremental organic capex, which is mostly used to expand its tenancies, is generally small in scale. Its tenancy ratio, measured in terms of total tower tenants to the total number of towers, was 1.74x at end-March 2013 and this has potential to increase given reasonable co-location opportunities in the industry.
Acquisitions drive leverage: Credit metrics are only likely to be affected by M&A activity, given the predictability of its operating and capex cash flows. However, the ability to add more tenants can reduce leverage quickly (12-18 months) after an acquisition. Barring acquisitions, Fitch expects FFO-adjusted net leverage to improve to around 4.0x-4.5x in 2013 and 3.0x-3.5x in 2014 (2012: 5.9x).
Counterparty risks manageable: TBI could also face difficulties in payments from weaker telcos (26.6% of Q113 revenue). PT Bakrie Telecom (BTel, CC) and PT Smartfren (CC(idn)), which together contributed about 7.7% of TBI’s Q113 revenue, could face liquidity problems as they struggle to grow their market share and generate sufficient cash flows to meet their obligations and capex commitments. However, Fitch believes that telcos typically regard leases as senior obligations as their business continuity is dependent on tower infrastructure.
No liquidity risks: TBI has strong liquidity due to its robust access to domestic and foreign-owned banks. This is evident from TBI’s committed undrawn facilities of USD215m (IDR2.1trn) as of end-Q113. At end-March 2013, cash balance of IDR539bn (including restricted cash marked for short-term debt of IDR292bn) and undrawn committed facilities were sufficient to cover its short-term debt of IDR1.9trn.
Negative: Future developments that could individually or collectively lead to negative rating actions include
-A debt-funded acquisition of another tower portfolio or lease defaults by weaker telcos causing FFO-adjusted net leverage to remain over 4.0x on a sustained basis
- A fall in revenue contribution from investment-grade telcos to below 50% A positive rating action is not expected in the medium term as the company is unlikely to deleverage significantly as it invests to maintain growth.