Fitch Ratings-Singapore/Jakarta-03 December 2015: Fitch Ratings has affirmed PT Tower Bersama Infrastructure Tbk’s (TBI) Long-Term Issuer Default Ratings (IDRs) at ‘BB’. At the same time, Fitch Ratings Indonesia has affirmed the National Long-Term Rating at ‘AA-(idn)’. The Outlooks for the ratings are Stable.
Fitch has affirmed all of TBI’s ratings even though the company’s deleveraging will be slower than the agency’s previous expectation. Fitch has revised the negative rating guidelines for TBI after reassessing the issuer’s business profile. Fitch now believes that the issuer’s solid business profile can withstand higher leverage for its current rating.
‘AA’ National Ratings denote expectations of very low default risk relative to other issuers or obligations in the same country. The default risk inherent differs only slightly from that of the country’s highest rated issuers or obligations.
KEY RATING DRIVERS
Share-Swap Deal Terminated: Fitch expects deleveraging to be slower than our previous expectation after TBI cancelled a share swap that would have given it a 49% stake in PT Dayamitra Telekomunikasi (Mitratel) in August 2015. Without the addition of the more than 4,000 towers from Mitratel, TBI will not be able to immediately increase its EBITDA. However, the end of the deal is positive for TBI’s margin, which would have been diluted by Mitratel’s lower-margin reseller business.
Reassessment of Business Profile: Fitch has reassessed TBI’s business risk profile in light of new peer comparison analysis with international telecommunications infrastructure businesses. This has led us to revise the downward guideline for FFO-adjusted leverage to 5.5x from 4.0x. TBI’s high leverage is mitigated by the company’s solid business profile. The company’s cash flows are highly predictable with locked-in revenue of IDR24.8trn (USD1.9bn vs USD1.3bn total debt) at end-June 2015, with average contract period of its portfolio at 6.7 years. This revenue has low counterparty risk as 83.5% comes from Indonesian telco operators with investment-grade ratings.
In addition, TBI mitigates currency risks that stem from having its entire borrowings denominated in US dollars by hedging all of its US dollar exposure. It also has US-dollar denominated annual revenue of USD40m from PT Indosat Tbk (BBB/Stable).
Clearer Leverage Target: In addition, TBI has recently indicated that it plans to operate at leverage within the parameter of its bank covenants, that is the ratio of net debt/EBITDA (last quarter annualised) of less than 6.25x. We believe that the company’s scale can accommodate an addition of 1,500-2,000 towers while still generating positive free cash flows. The company plans to spend IDR1trn on dividend and share buybacks in 2015, and expects to spend larger amounts in the future.
Solid Liquidity and Funding Access: TBI successfully refinanced its short-term loan by tapping a USD275m long-term loan from its current lenders. The new loan has a lower interest rate than its old facility and now the company has average debt maturity to 4.7 years with negligible amortisation until 2018. In addition, the company also still has USD300m unutilised working capital facility that ends in 2018.
Fitch’s key assumptions within our rating case for the issuer include:
– Tower and tenant additions of less than 1,000 in 2015
– Gradual recovery in tower and tenant growth from 2H16
– Dividend payment and share buy backs of around IDR1trn in 2015. These amounts will increase in 2016 and 2017.
– Stable industry rental tariff that results in stable EBITDA margin of 82%
Fitch expects no positive rating action as the company’s leverage will remain high in the medium term.
Negative: The solid long-term contracts, strong EBITDA margin, and low counterparty risk have led to Fitch to re-assess TBI’s business risk profile. Accordingly, Fitch has revised its rating sensitivities. Future developments that could individually or collectively lead to negative rating actions include:
– A debt-funded acquisition, or lease defaults by weaker telcos, or significant dividend payments and share buyback activity leading to funds from operations (FFO)-adjusted net leverage (taking into account the hedged debt amount) remaining above 5.5x on a sustained basis
FULL LIST OF RATING ACTIONS
Long-Term Foreign-Currency IDR affirmed at ‘BB’; Stable Outlook
Long-Term Local-Currency IDR affirmed at ‘BB’; Stable Outlook
National Long-Term Rating affirmed at ‘AA-(idn)’; Outlook Stable
Foreign currency senior unsecured rating affirmed at ‘BB’
USD300m guaranteed senior unsecured notes due 2018 issued by TBG Global Pte Ltd affirmed at ‘BB’
USD350m guaranteed senior unsecured notes due 2022 issued by TBG Global Pte Ltd affirmed at ‘BB’
National senior unsecured rating affirmed at ‘AA-(idn)’
IDR4trn bond programme affirmed at ‘AA-(idn)’
IDR190bn tranche I under the IDR4trn bond programme affirmed at ‘AA-(idn)’
Nitin Soni (International Ratings)
Fitch Ratings Singapore Pte Ltd