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Fitch Affirms Protelindo at 'BBB-'/'AAA(idn)'; Outlook Stable
May 9, 2017 / 7:23 AM / 7 months ago

Fitch Affirms Protelindo at 'BBB-'/'AAA(idn)'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, May 09 (Fitch) Fitch Ratings has affirmed the Long-Term Foreign-Currency Issuer Default Rating of Indonesia's largest independent tower operator, PT Profesional Telekomunikasi Indonesia (Protelindo) at 'BBB-'. Simultaneously, Fitch Ratings Indonesia has also affirmed the National Long-Term Rating and national senior unsecured rating at 'AAA(idn)'. The Outlook on the ratings is Stable. A full list of rating actions is at the end of this rating action commentary. 'AAA' National Ratings denote the highest rating assigned by Fitch on its national rating scale for that country. This rating is assigned to issuers or obligations with the lowest expectation of default risk relative to all other issuers or obligations in the same country. KEY RATING DRIVERS Stable Cash Flows: The ratings reflect Protelindo's leading market position and stable cash generation, underpinned by its long-term contracts with mobile operators in Indonesia. Fitch forecasts pre-dividend free cash flow margin of 20%-30% in 2017-2018, supported by high EBITDA margin (2016: 87%). Tower rentals are locked-in under existing contracts, although average monthly tower leases may come under pressure as tenancy contracts expire. As at end-2016, Protelindo had IDR26 trillion in locked-in revenues and an average remaining contract period of around five years. There are no major contracts due for renewal in the next two years. Consistent Financial Policy: Protelindo remains committed to maintaining its investment-grade rating, and plans to operate below net debt/last quarter annualised (LQA) EBITDA of 3.0x (2016: 1.6x). We see scope for M&A opportunities as the company seeks to bolster growth. Protelindo's scale and financial strength should comfortably support a combination of organic and inorganic growth, and progressive dividends, without a material impairment to its credit profile. Our projections assume low to mid-single-digit revenue growth, stable EBITDA margins of 84%-86% and dividend payment amounting to 90% of its pre-dividend free cash flows, starting end-2017. Exposure to Weaker Tenants: The ratings are however, constrained by Protelindo's exposure to tenants with weaker credit profiles. Protelindo derives close to half of its revenue from investment-grade telecom operators. Of the remaining revenue, PT Hutchinson 3 Indonesia (Hutch) accounts for 37%, PT Smartfren Telecom Tbk (CCC(idn)) makes up 6% and PT Internux accounts for 4%. However, we believe Protelindo's relatively low leverage will help mitigate this counterparty risk. In the absence of any M&A deals, we estimate FFO-adjusted net leverage will remain stable at around 2.0x, even with a possible discontinuation of lease payments by internet service provider, Internux. Receivables from Internux increased to IDR257 billion (5% of revenue) at end-2016, with restructured payments scheduled in early 2017. Natural Hedge, Staggered-Debt Maturities: Protelindo's exposure to depreciation in the rupiah is mitigated by long-term non-cancellable tower rental agreements, of which agreements denominated in US dollars accounted for 35.4% of revenue in 2016. At end-2016, 58.4% of its debt was in rupiah. Protelindo also has well-staggered maturities, with its foreign-denominated debt falling due only after 2018. DERIVATION SUMMARY Protelindo's ratings are driven by its stable cash flow generation and conservative financial profile. The company is also well-positioned as Indonesia's largest independent tower company against the second- and third-largest tower operators, PT Tower Bersama Infrastructure Tbk (TBI, BB-/AA-(idn)/Stable) and PT Solusi Tunas Pratama Tbk (STP, BB-/A+(idn)/Stable), respectively. Protelindo's 2.0x net leverage is low compared with global peers, as well as TBI's 6.0x and STP's 5.0x. Fitch believes the low leverage should also help Protelindo mitigate its weaker tenancy mix. Telcos with investment-grade international ratings account for about half of Protelindo's revenue, compared to TBI's 83% and STP's 64%. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Yearly tower additions of 600-700 and tenancy additions of 800-1,000 in 2017-2019. - Discontinuation of lease payments and no recovery of receivables from Internux. - Operating EBITDA margin in the mid-80% range in 2017-2019. - Capex-to-revenue ratio of 25%-36% in 2017-2019. - Dividend payments to begin in 2017, with a payout ratio of 90% of annual pre-dividend free cash flows. - No acquisitions or divestments. - Average interest cost of 6%-7%. RATING SENSITIVITIES Developments that may, individually or collectively, lead to positive rating action include: - Sustained FFO-adjusted net leverage of below 3.0x; - Improvement in tenancy mix so that investment-grade telcos account for more than 75% of revenue; and - Positive FCF. Developments that may, individually or collectively, lead to negative rating action include: - FFO-adjusted net leverage rising above 4.0x on a sustained basis, or evidence of weakness in Protelindo's contractual renegotiations with its tower tenants. LIQUIDITY Strong Liquidity: Protelindo's unrestricted cash balance of IDR2.9 trillion as of end-2016 is sufficient to meet short-term maturities of IDR1.5 trillion over the next 12 months. Fitch expects liquidity to remain strong, supported by contracted revenue, positive free cash flows and reasonable refinancing ability with access to capital markets and local banks. FULL LIST OF RATING ACTIONS PT Profesional Telekomunikasi Indonesia - Long-Term Foreign-Currency IDR affirmed at 'BBB-'; Outlook Stable - National Long-Term Rating affirmed at 'AAA(idn)'; Outlook Stable - National senior unsecured rating affirmed at 'AAA(idn)' - Issues under the IDR6.5 trillion bond programme affirmed at 'AAA(idn)' Contact: Primary Analyst Janice Chong (International ratings) Director +65 6796 7241 Fitch Ratings Singapore Pte Ltd One Raffles Quay South Tower #22-11 Singapore 048583 Salman Fajari Alamsyah (National ratings) Analyst +62 21 2988 6818 Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 35 Jakarta 12910 Secondary Analyst (International ratings) Nitin Soni Director +65 6796 7235 Committee Chairperson Steve Durose Managing Director +61 2 8256 0307 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(idn)' for National ratings in Indonesia. Specific letter grades are not therefore internationally comparable. 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