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May 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Indonesia’s PT Profesional Telekomunikasi Indonesia’s (Protelindo) Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BB’ and its National Long-Term Rating at ‘AA-(idn)'. The Outlook is Stable on both ratings.
Key Rating Drivers
Manageable Financial Leverage: Protelindo’s funds flow from operations (FFO)-adjusted net leverage rose to 3.9x at end-March 2013 (2012: 3.4x) due to an acquisition investment of IDR992bn (USD104m). We expect 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 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 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, rather than 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 a natural growth strategy for tower companies. 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 Concern Remains: Protelindo improved its tenancy mix in 2012 to 35:65 in favour of investment-graded telcos from 30:70 in 2011. Our key concern for Protelindo’s rating is its exposure to small, unprofitable Indonesian telcos. Particularly, PT Bakrie Telecom (BTel, CC) and PT Smartfren (CC(idn)), which together contributed about 15% of Protelindo’s 1Q13 revenue, face liquidity problems as they struggle to expand their market share and generate sufficient cash.
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.
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 would also put downward pressure on the ratings.
A positive rating action is not expected in the short term; the company is unlikely to deleverage significantly as it invests to maintain growth.