Photo: Privacy

JAKARTA (TheInsiderStories) – Last Monday (04/06), Indonesian tower operator PT Profesional Telekomunikasi Indonesia’s (Protelindo), parent company of PT Sarana Menara Nusantara Tbk (IDX: TOWR), announced that it had completed the acquisition of PT Komet Infra Nusantara (KIN).

The company plans to keep KIN as a separate operating entity under Protelindo.

According to Moody’s Investor Services, The Rp1.4 trillion (US$100.71 million) all-cash transaction is credit positive for Protelindo because it strengthens the company’s business profile and further solidifies its market position as the largest independent mobile tower operator in Indonesia.

Post-acquisition, Protelindo will remain the largest independent tower operator with 16,401 towers leased to 27,278 tenants with about a 19 percent share of the market. Total market share of the independent tower operators remains at 56 percent.

But according to Nidhi Dhruv, Vice President – Senior Analyst of Moody’s in his report, there is little coverage overlap between KIN and Protelindo, and therefore management does not expect to decommission any of KIN’s towers. More than half of the acquired towers from KIN are outside Java, which will improve Protelindo’s geographical footprint.

Furthermore, he added, Protelindo has also assumed KIN’s debt of Rp1 trillion as part of the transaction and plans to refinance this debt soon with new bank loans.

Protelindo’s pro forma leverage as measured by adjusted debt/EBITDA remains at 2.0x-2.2x over 2018-19 even with the additional debt cause the new towers are operational, and because of the generally EBITDA-accretive nature of the tower business.

He continued, management’s commitment to a strong balance sheet remains an integral part of Protelindo’s investment grade rating and prevents any additional acquisitions or shareholder initiatives from resulting in a material increase in leverage or a significant contraction in cash flow.

“We expect Protelindo’s ratio of free cash flow to debt to be 4.6 percent in 2018, compared with 7.0 percent a year ago,” Dhruv said.

Protelindo’s management has so far been selective in its acquisitions and has a track record of walking away from nonviable transactions. Because of this, he believe that the company will remain committed to maintaining metrics and a financial profile consistent with an investment-grade rating.

Over the past three years, Protelindo has made only two significant acquisitions such as a 100 percent ownership interest in PT iForte Solusi Infotek in July 2015 and the June 2016 purchase of 2,500 towers from PT XL Axiata Tbk (IDX: EXCL) (Ba1 positive) with a leaseback for a period of 10 years.

Dhruv expect Protelindo to continue participating in future tower acquisitions. Given its relatively low leverage, we estimate that the company can accommodate another debt-funded acquisition of about 2,500 towers without materially compromising its financial profile. Protelindo’s management has guided toward a net leverage tolerance of 2x-3x (based on last quarter annualized EBITDA), which its Baa3 rating can accommodate.

Sarana Menara has completed KIN’s acquisition on June 5 from PT Nusantara Infrastructure Tbk (IDX: META). Protelindo, a company owned by Djarum Group, will take over tower the assets following the shares sale.

Based on the sale and purchase agreement signed on March 23, META’s unit PT Telekom Infranusantara sold its 1.31 billion shares of which was taken from internal cash generated from operations.

Through this acquisition, Sarana Menara gets additional 1,400 towers spread across North Sumatra, Riau, Batam, most of Java and Bali. In addition, KIN also operates fiber optic cable network especially in Surabaya, Batam and Medan. In total, when coupled with KIN assets, TOWR has more than 16,400 towers, over 27,000 tenancies and over 5,300 km of fiber optic cables.

Protelindo owns and operates over 14,500 towers in Indonesia. Its unit was established in January 2003 and has become the largest independent owner and operator of towers for wireless operators in Indonesia. Protelindo’s primary business is leasing space at its multi-tenant tower for all major wireless operators in Indonesia under long-term lease agreements.

US$1: Rp13,900