MARC AFFIRMS ITS MARC-1ID/AAID ON SERRISA SINAR BHD’S RM200 MILLION ICP/IMTN FACILITY; UPGRADES RATING ON ITS RM20 MILLION JUNIOR IMTN FACILITY TO AA-ID

Oct 23, 2012 -

MARC has affirmed the rating of Serrisa Sinar Bhd’s (Serrisa Sinar) RM200 million Islamic commercial papers/Islamic medium term notes (ICP/IMTN) (Senior Notes) at MARC-1ID/AAID and upgraded the rating of its RM20 million Junior IMTN (Junior Notes) to AA-ID. The ratings outlook is stable. The rating action affects RM75 million of outstanding notes issued under the programme comprising RM70 million of Senior Notes and RM5 million of Junior Notes.

Serrisa Sinar is a special purpose company that was established to issue the Islamic debt to finance the purchase of contract receivables in respect of completed telecommunication towers constructed by Weida Works Sdn Bhd (Weida Works). Weida Works, a wholly-owned subsidiary of Weida (M) Bhd, obtained the rights to finance and construct telecommunication towers or structures in Sabah through its joint-venture with state-backed company, Common Tower Technologies Sdn Bhd (CTT). The upgrade reflects the robust projected debt service coverage for the Junior Notes over the remaining tenure of the transaction in the absence of further issuance of debt with the expiration of the availability period for the notes facility. The assigned rental revenue from 242 telco towers is expected to yield robust finance service coverage ratios (FSCRs) exceeding 10 times over the remaining tenure of the transaction.

The stability and predictability of the assigned revenue stream, meanwhile, is derived from the strong financial profiles of the telcos and the agreed lease rental rates in a long-term licence agreement between state-backed telco tower developer, CTT, and three mobile network operators, Celcom Axiata Bhd (Celcom), Maxis Bhd (Maxis) and DiGi Telecommunications Sdn Bhd (DiGi). The rental payments from the three telcos are deposited into a trustee-controlled collection account, subsequent to which, the issuer will direct 60% of the total rental payments received (until April 23, 2015) into a sinking fund to meet the debt service obligations on the notes while the balance is transferred to Weida Works for, among others, maintenance costs. The Senior Notes are due to be repaid in full by April 2015, after which, only 40% of rental revenues will be allocated to the sinking fund for the repayment of the Junior Notes. Serrisa Sinar’s FSCR of 6.9 times (x) for the financial year ended December 31, 2011 (FY2011) was well above its minimum covenant requirement of 1.5x.

Serrisa Sinar has not drawn down on the notes programme since our last review as the availability period for issuing new notes under the programme expired on April 23, 2011. A total of 242 towers have been financed by the debt programme, as compared to the original forecast of 340 towers due to the sharing of infrastructure network by telcos. The company has repaid notes totalling RM75 million since the inception of the notes programme, leaving outstanding notes at RM75 million. Based on projections, Serrisa Sinar expects to generate operating cash flow of about RM29 million per year from 2012 to 2014. Its cash and bank balances stood higher at RM31 million as at end-December 2011 compared to RM21.6 million a year ago, while cash flow from operations (CFO) interest coverage improved to 5.55x (FY2010: 1.28x). Total contract receivables (lease payments) declined to RM67.4 million as at end-FY2011 (FY2010: RM90.8 million). Apart from working capital reductions driven by a decrease in contract receivables, Serrisa Sinar’s CFO also benefitted from full-year rentals from 36 towers which were completed in October 2010. Borrowings remain adequately covered by contract receivables and cash and bank balances; the ratio of receivables and cash and bank balances to borrowings has been sustained at 1.0x since the inception of the programme.

The stable outlook reflects the expectation of stable and timely lease payments from the telcos for the financed towers.

Contacts:

Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;

Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.