MARC AFFIRMS ITS MARC-1IS/AAAIS RATINGS ON PINNACLE TOWER SDN BHD’S ISLAMIC CP AND MTN PROGRAMMES

Sep 19, 2011 -

MARC has affirmed its ratings of MARC-1IS and AAAIS on Pinnacle Tower Sdn Bhd’s (PTSB) RM50 million Islamic Commercial Papers (ICP) and RM400 million Islamic Medium Term Notes (IMTN) respectively. The outlook on the ratings is stable. The rating action affects RM335 million of outstanding notes issued under the programme.

The affirmed ratings reflect the secure revenue stream backing the notes which consists of monthly lease rentals for completed telecommunication towers from the three mobile operators, Celcom Axiata Bhd, Maxis Broadband Sdn Bhd and Digi Telecommunications Sdn Bhd. The credit strength of the assigned revenue stream derives from the very strong financial profiles of the mobile operators as well as the predictable lease rentals which are based on agreed upon rates in a long-term licence agreement which will remain in effect throughout the tenure of the programme. The transaction structure provides for the direct payment of all lease rentals into a trustee-controlled collection account, and the transfer of moneys into a sinking fund account for debt service. The ratings also factor in the exclusive rights of Sacofa Sdn Bhd (Safoca), the holding company of PTSB, to construct, own and manage the towers and structures in the state of Sarawak, its status as a government-related entity of the state government of Sarawak and its strategic importance to the state’s telecommunication industry as evidenced by the state government’s willingness to provide support to Sacofa to ensure that it complies with its gearing covenants under the programme.

PTSB is a special purpose vehicle wholly-owned by Sacofa, which in turn is 69.6% owned by the State Financial Secretary of Sarawak (SFSoS), incorporated for the sole purpose of raising financing via the issuance of the ICP/IMTN programme. Sacofa, which is engaged in trading and provision of services in telecommunication infrastructure and related businesses in Sarawak, has business revenues from rental of towers, bandwidth services and fibre core. Rentals from towers are the mainstay of the company, contributing approximately 74% of total revenue. Under a ten-year Master License Agreement that commenced in June 2005, mobile operators are contractually obligated to make monthly lease rental payment to Safoca for use of the towers.

Since our last review, Sacofa has constructed another 11 towers, bringing the total number of towers to 478 as at end-December 2010. It has repaid notes totalling RM65 million since 2009, leaving RM335 million of notes outstanding. For financial year ended December 31, 2010 (FY2010), Sacofa’s revenue increased by 16% to RM123.7 million and pre-tax profit by 23% to RM44.1 million compared to the corresponding period last year. The improved performance was due to increase in the number of users for the existing towers and increased usage for its bandwidth services. Cash flow from operations increased to RM111.66 million (FY2009: RM65.04 million), with free cash flow increasing to RM93.3 million (FY2009: RM11.1 million) as fewer towers were constructed during the year; 11 towers were constructed, vis-à-vis the initial projection of 60 towers per year, which is mainly due to the deferment of capital expenditure plan by the mobile operators. The impact on the financial performance was compensated by the increase in the number of users for the existing towers and increased usage of bandwidth services. Gearing as measured by debt to equity, improved to 2.08 times (x) (FY2009: 2.73x), aided by Sacofa’s improved operating performance. CFO interest coverage strengthened to 5.78x (FY2009: 3.16x) and cash and bank balances rose to RM183.5 million as at end-December 2010 (FY2009: RM135.4 million).

MARC notes that rental payments from the mobile operators have continued to be timely and the stable outlook for the notes incorporates expectations of continued timely payments from the mobile operators for the towers.

Contacts:
Goh Shu Yuan, +603-2082 2268/ shuyuan@marc.com.my;
Francis Xaviour Joe, +603-2082 2279/ fxjoe@marc.com.my.