MARC has affirmed the rating of Instacom SPV Sdn Bhd’s (ISPV) RM200.0 million Murabahah Medium Term Notes (MMTN) Programme at AAID with a stable outlook.

Oct 29, 2013 -
MARC has affirmed the rating of Instacom SPV Sdn Bhd’s (ISPV) RM200.0 million Murabahah Medium Term Notes (MMTN) Programme at AAID with a stable outlook. ISPV, a wholly-owned subsidiary of Instacom Engineering Sdn Bhd (IESB), was set up solely to facilitate the issuance of the MMTNs to finance the purchase of completed telecommunication (telco) towers constructed by the latter. ISPV has RM15.0 million MMTNs outstanding as at September 30, 2012.
The rating on the MMTNs primarily reflects the predictable source of cash flow generated from assigned monthly lease rentals of telco towers and the credit risk of the lessees, Maxis Berhad, Celcom Axiata Berhad and DiGi Telecommunications Sdn Bhd (DiGi). The rating on the notes is weak-linked to MARC’s AA/stable public information rating on the lowest rated lessee. The contractual nature of the lease rentals continues to provide structural stability to debt service coverage. ISPV’s finance service coverage ratio (FSCR) as at December 31, 2012 was 1.36 times (x), in compliance with its FSCR covenant of 1.25x.
Based on its projected cash flow, ISPV will have sufficient funds in its finance service reserve account (FSRA) for the redemptions of its outstanding MMTNs between December 2013 and end-December 2014. ISPV has a cash balance of RM12.0 million in its FSRA as of October 7, 2013 and is expected to collect lease rental income of RM5.8 million from October 2013 to December 2014.
Sarawak-based IESB was awarded a contract for the construction of telco towers by Terengganu state-backed Desabina Industries Sdn Bhd (DISB) in April 2005, with the former having completed 84 towers. The completed towers were then leased to the mobile operators for a seven-year period under a license agreement with DISB. DISB then surrendered its rights to the lease rental payments to ISPV. ISPV is also responsible for the fairly basic maintenance of the tower sites and related infrastructure, which MARC notes significantly limits noteholders’ exposure to performance risk.
Apart from telco tower construction, IESB constructed 883 telco structures for DiGi, financed under the rated programme, for which it received lump sum payments upon completion. Nonetheless, the rating agency understands that IESB is no longer funding its telco tower or structure construction contracts with the MMTN and hence there will be no further drawdowns from the programme.
The current stable outlook on the rating reflects continued timely payments from the existing towers.
Contacts:
Ngiam Tee Wei +03-2082 2268/ teewei@marc.com.my;
Taufiq Kamal +03-2082 2251/ taufiq@marc.com.my.