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

Oct 17, 2014 -
MARC has affirmed the ratings of MARC-1IS and AAAIS on Pinnacle Tower Sdn Bhd’s (Pinnacle Tower) RM50 million Islamic Commercial Papers (ICP) and RM400 million Islamic Medium Term Notes (IMTN) respectively with a stable outlook.
Wholly-owned by Sacofa Sdn Bhd (Sacofa), Pinnacle Tower is a special purpose funding vehicle for its parent company which is involved in telecommunication infrastructure facilities and related businesses. Sacofa is 70.5%-owned by the State Financial Secretary of Sarawak. The affirmed long-term rating on Pinnacle Tower incorporates a two-notch rating uplift for the implied state support from Sacofa’s standalone corporate credit rating of AA. The state government of Sarawak (SGS) carries a public information rating of AAA/Stable from MARC. Sacofa’s standalone credit profile incorporates its steady revenue and cash flow generation capability. The ratings are also supported by Sacofa’s position as a state-backed entity and SGS’s requisite minimum 51% shareholding in the company based on the shareholding maintenance covenant. 
Sacofa is responsible for constructing, owning and managing telecommunication (telco) towers as well as providing fibre-optic infrastructure in Sarawak, and derives its revenue from the rental of towers, bandwidth services and fiber cores to telecommunication operators. During FY2013, Sacofa completed the construction of 11 telco towers, resulting in a cumulative total of 621. Telco tower rentals contributed 66.8% of total revenue in FY2013 (FY2012: 64.6%) while bandwidth leasing revenue contributed 31.8% (FY2012: 33.9%). Additional revenue contributions from telco tower rental would come from the increase in multiple tenant leases for Sacofa’s towers and the new smaller telco towers that are expected to come onstream. Contribution from the bandwidth segment is expected to increase further post-Sacofa’s upgrading of both its on-land and submarine bandwidth networks following its fiberisation leasing agreements with the relevant telecommunication operators.
Sacofa registered a marginal decline of 1.2% in revenue to RM153.4 million (FY2012: RM155.3 million) due to lower revenue from bandwidth usage and fiber core rentals despite a higher contribution from tower rentals. Pre-tax profit fell 20.9% y-o-y to RM66.9 million in FY2013 (FY2012: RM84.6 million), mainly attributed to a decline in other income on project management fees from constructing telecommunication towers for Malaysian Communications and Multimedia Commission (MCMC) under the T3 programme. As a result, operating profit margin declined to 53.2% in FY2013 (FY2012: 66.2%). Cash flow from operations (CFO) increased to RM177.4 million in FY2013 from RM83.6 million in FY2012 on better working capital management. 
Based on Sacofa’s cash flow projections, estimated cash flow generation is expected to be robust with a minimum annual CFO of RM95 million relative to its annual debt repayment of between RM65 million and RM90 million from FY2014 to FY2016. The outstanding balance of the rated programme is RM160 million as at June 30, 2014. Sacofa’s projected finance service cover ratio (FSCR) which is above 4.00x throughout the remaining tenure of the notes programme is expected to provide ample cash flow coverage and liquidity. Sacofa’s cash balance as at end-June 2014 stood at RM204.4 million and debt-to-equity has improved to 0.43x from 0.65x in FY2013 with the continued paring down of its debt.
The stable outlook reflects Sacofa’s strong sustainable cash flow generation to meet the obligation under the rated facilities and MARC envisages continued support for the company from SGS.
Contacts:
Nicola Tan, +603-2082 2262/ nicola@marc.com.my;
Yap Lai Ken, +603-2082 2247/ laiken@marc.com.my.