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RPT-Correction: Fitch rates Indonesia's Protelindo's IDR2trn bond 'AA-(idn)'
July 17, 2013 / 8:41 AM / 4 years ago

RPT-Correction: Fitch rates Indonesia's Protelindo's IDR2trn bond 'AA-(idn)'

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July 17 (Reuters) - (The following statement was released by the rating agency)

This announcement replaces the version published on 21 June 2013. The period for the FFO-adjusted net leverage of 3.4x should be 2011, and not 2012 as previously stated.

Fitch Ratings has assigned Indonesia’s PT Profesional Telekomunikasi Indonesia’s (Protelindo) a National senior unsecured rating of ‘AA-(idn)’ and the company’s proposed IDR2trn 2013 bonds a ‘AA-(idn)’ rating.

Protelindo will use the proceeds to repay its IDR bank loans and for general corporate purposes. The bonds are rated at the same level as Protelindo’s National Long-Term rating of ‘AA-(idn)’ as they constitute direct, unconditional, and senior unsecured obligation of the company. The proposed bonds will rank equally with all the unsecured obligations of the company.

Key Rating Drivers

Manageable financial leverage: Protelindo’s funds flow from operations (FFO)-adjusted net leverage rose to 3.9x at end-March 2013 (2011: 3.4x) due to an acquisition investment of IDR992bn (USD104m). Fitch expects Protelindo’s leverage to remain below 4.0x in 2013 as internally generated cash should be sufficient to fund capex. The agency also derives comfort from management’s commitment to keep net debt/quarterly annualised EBITDA at around 3.0x-3.5x. Solid business model: Protelindo draws stable and predictable cash flows from long-term non-cancellable contracts (10-12 years), which provide for in-built annual price increases linked to the inflation rate. The company receives more than half of its total revenue annually in advance and had about USD2.7bn (IDR25.6trn) of contracted revenue through to 2027 at end-March 2013. The rating also factors in strong EBITDA margins (2012: 83%) and a favourable regulatory regime, which encourages telcos to share towers, as opposed to building new single-tenancy towers.

Acquisitive nature: Fitch believes that Protelindo’s leverage is unlikely to fall below 3.0x on a sustained basis in the short term as acquisition is inherent to tower companies’ growth strategy. During 2012, Protelindo bought 152 towers from PT Central Investindo, 261 towers from Netherlands-based Royal KPN N.V (KPN, BBB-/Stable) and 503 towers from PT Hutchison CP Telecommunication (HCPT, a subsidiary of Hutchison Whampoa Limited (HWL, A-/Stable)). Fitch’s forecast includes an annual acquisition budget of IDR1trn (USD105m).

Tenancy mix risk remains: Protelindo’s tenancy ratio of investment grade to non-investment grade telcos improved in 2012 to 35:65 from 30:70 in 2011. Nevertheless, Protelindos’s high exposure to small unprofitable Indonesian telcos remains a key ratings risk Particularly, PT Bakrie Telecom (BTel, CC) and PT Smartfren (CC(idn)), which together contributed about 15% of Protelindo’s Q113 revenue, face liquidity problems as they struggle to expand their market share and generate sufficient cash flows.

However, Fitch derives comfort from the fact that telcos frequently view tower lease obligations as senior to debt service given the need to continue to provide services to subscribers.

Rating Sensitivities

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 leading to deterioration in FFO-adjusted net leverage to over 4.0x on a sustained basis

- Weakening of HWL’s commitment to HCPT leading to HCPT not honouring its contractual commitments to Protelindo. HCPT contributed about 35.6% of Protelindo’s revenues in Q113.

A positive rating action is not expected in the short term as the company is unlikely to deleverage significantly as it invests to maintain growth.

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