Fitch Rates Tower Bersama’s Proposed USD Notes ‘BB(EXP)’
(The Insider Stories) — Fitch Ratings has assigned TBG Global Pte Ltd.’s proposed USD guaranteed notes an expected ‘BB(EXP)’ rating. The final rating of the proposed notes is contingent upon the receipt of documents conforming to information already received.
TBG Global Pte Ltd is a finance subsidiary of Indonesia-based telecommunications tower operator PT Tower Bersama Infrastructure Tbk (TBI, BB/Stable).
Key Rating Drivers
Proposed notes not notched: The notes will be unconditionally and irrevocably guaranteed by TBI but not by TBI’s operating subsidiaries (opcos) which generate all of the group’s revenue. Therefore the notes will be subordinated to the opcos’ secured debt which totaled IDR8.1trn (USD834m) at end-December 2012. However, a high proportion of the group’s operating cash flows are contractually locked in (USD2bn at end-December 2012), which leads to strong creditor recovery in a distressed scenario. Therefore, despite subordination, Fitch believes that recovery given default on the notes would be at least average, which warrants an instrument rating at the same level as the TBI’s Issuer Default Rating.
Unsecured debt replaces secured: As opco secured debt amortises, the company’s financing strategy is to replace this with holding company unsecured debt which will reduce the level of subordination, further supporting recovery on the proposed notes.
Predictable cash, strong margins: TBI’s ratings reflect its ability to generate predictable cash flows backed by long-term contracts (average contract life: 7.7 years) with Indonesian telcos. Further, 72% of TBI’s of Q412 revenue was contributed by investment-grade telcos. Fitch expects TBI’s operating EBITDAR margin to remain above 80% in the medium term. In addition, incremental organic capex required to expand its tenancies is low. Its tenancy ratio, measured in total tower tenants/towers, was 1.75x in 2012, which has potential to increase given ample co-location opportunities in the industry.
Acquisitions drive leverage: Given the predictability of its operating and capex cash flows, credit metrics are only likely to be affected by M&A activity. However, the ability to add additional tenants can reduce leverage quickly (12-18 months) after an acquisition. Barring acquisitions, Fitch expects funds from operations (FFO)-adjusted net leverage to improve to 4.5x in 2013 and 3.2x in 2014 (2012: 5.9x).
Counterparty risks manageable: TBI could also face difficulties in payments from weaker telcos (28% of Q412 revenue). PT Bakrie Telecom (BTel, CCC) and PT Smartfren (CC(idn)), which together contributed about 8.3% of TBI’s Q412 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 concerns: 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 USD250m. At end-December 2012, cash balance of IDR705bn (including restricted cash marked for short term debt of IDR198bn) and undrawn committed facilities were sufficient to cover its short-term debt of IDR856bn.
