JAKARTA (TheInsiderStories) – Moody’s Investors Service has affirmed PT Profesional Telekomunikasi Indonesia (Protelindo) Baa3 issuer rating. It said, the outlook for the rating is stable.
“Protelindo’ Baa3 issuer rating reflects its resilient and contractually based business model with stable free cash flow generation and relatively low leverage,” says Nidhi Dhruv, a Moody’s Vice President and Senior Analyst in a written statement today (11/15).
Protelindo‘ revenue mix is gradually diversifying as the technology landscape evolves. The company’s VSAT satellite service and fibre optic businesses now contribute about 11% of revenue, and Moody’s expects their contribution to increase to about 15 – 16 percent over the next 2 years.
“Although these non-tower businesses have lower margins, we expect Protelindo’ EBITDA margins to remain strong at 80%-81% given the still dominant revenue contribution from the high-margin tower business,” adds Dhruv.
Protelindo‘ investment-grade rating is also supported by its position as the largest independent tower company in Indonesia by some margin, with 18,233 towers leased to 30,430 tenants at the end of September 2019. The acquisition of 1,000 towers from PT Indosat Tbk (IDX: ISAT) (Baa3 negative) for $138 million, will cement the provider’ leading position with a market share of 20 percent of national tower market. The company also has 3,600 VSAT leases and 17,500 km of fibre optic cable.
The tower acquisition cost, coupled with high capex and dividends, will result in negative free cash flow generation in 2019. However, Moody’s expects the company to generate positive free cash flows in 2020 and 2021, absent further acquisitions.
“Protelindo has built scale through organic and inorganic growth, and Moody’s expects the company to remain acquisitive over the near-term as more mobile operators look to monetize their tower assets. Management’ commitment to a strong balance sheet is an integral part of Protelindo’ investment-grade rating and provides comfort that any additional acquisitions or shareholder initiatives will not result in a material increase in leverage, nor a significant contraction in cash flows,” Dhruv stated.
Protelindo’ tenancy mix will also benefit from its recent acquisition, as Indosat will become the anchor tenant. Moody’s expects the revenues form Indonesia’ “Big Four” mobile operators, namely PT Telekomunikasi Selular (Baa1 stable), Indosat, PT XL Axiata Tbk (IDX: EXCL) (Baa3 stable) and H3I, to remain over 85 percent.
Furthermore, the company is protected from any near-term lease renewal risk. As of 30 June 2019, the average remaining life for its tower tenancy contracts was 7.5 years. It also has about IDR45.1 trillion (US$3.0 billion) of revenues contracted through 2032.
Protelindo liquidity remains good, although it faces significant refinancing risk as about 30% of its total borrowings will mature in the next 12 months. This risk is partially mitigated by its Rp8.3 trillion ($592.86 million) of undrawn bank loan facilities as of 30 September 2019, which it can use to fund the cash shortfall and refinance its maturing debt.
The stable outlook reflects Moody’s expectation that the company will maintain a strong financial profile through steady growth and positive free cash flow generation absent further acquisitions. Leverage, as measured by adjusted gross debt/EBITDA, should also remain around 2.8x – 3.0x.
Founded in 2003, Protelindo is one of two leading independent tower companies in Indonesia with 18,233 telecommunication towers serving 30,430 tenants as of Sept. 30, 2019. It essentially leases space on its communications towers to cellular telecommunications operators on long-term contracts.
Protelindo is wholly owned by PT Sarana Menara Nusantara Tbk (IDX: TOWR), which is listed on the Indonesian Stock Exchange. Currently, 50.04 percent of the company is owned by the Hartono family, and Protelindo’s management, sponsors and advisors hold a significant stake in the company.
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