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Fitch Affirms PT Solusi Tunas at 'BB-'/'A+(idn)'; Outlook Stable
May 9, 2017 / 4:48 AM / 7 months ago

Fitch Affirms PT Solusi Tunas at 'BB-'/'A+(idn)'; Outlook Stable

(The following statement was released by the rating agency) SINGAPORE/JAKARTA, May 09 (Fitch) Fitch Ratings has affirmed Indonesia-based tower operator PT Solusi Tunas Pratama Tbk's (STP) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) and senior unsecured rating of 'BB-'. Fitch Ratings Indonesia has simultaneously affirmed the National Long-Term Rating at 'A+(idn)'. The Outlook on the issuer ratings is Stable. Fitch has also affirmed Pratama Agung Pte. Ltd.'s USD300m 6.25% guaranteed senior unsecured notes due 2020 at 'BB-'. The notes are unconditionally and irrevocably guaranteed by STP and are therefore rated at the same level as STP's Long-Term IDR. A full list of rating actions follows at the end of this commentary. 'A' National Ratings denote expectations of low default risk relative to other issuers or obligations in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment to a greater degree than is the case for financial commitments denoted by a higher rated category. KEY RATING DRIVERS Size, Leverage Drive Ratings: STP's ratings continue to be driven by its smaller size of under 7,000 towers and slower tower growth relative to Indonesia's top-two tower companies, PT Profesional Telekomunikasi Indonesia (Protelindo, BBB-/AAA(idn)/Stable) and PT Tower Bersama Infrastructure Tbk (TBI, BB-/AA-(idn)/Stable). STP's net leverage on a hedged basis of around 5.0x is much higher than Protelindo's 2.0x, but lower than TBI's 6.0x. Stable Credit Profile: STP's ratings reflect its long-term cash-flow visibility, supported by its tower leasing contracts and robust EBITDA margins. Counterparty risk is moderate as investment-grade telcos accounted for 64% of its revenue in 2016. Fitch expects STP's credit profile to remain stable, although a possible discontinuation of lease payments by long-term evolution (LTE) mobile broadband operator PT Internux could remove around 5% of its annual revenue. Receivables from Internux rose to IDR321 billion (18% of revenue) at end-2016; both parties are still in the midst of finalising a payment schedule to recover long-outstanding receivables. Net Leverage around 5.0x: The Stable Outlook reflects our expectations that STP's FFO-adjusted net leverage will be around 5.0x in 2017-2018 (2016: 4.9x), below the 5.5x threshold at which we are likely to take negative rating action. We expect STP to generate limited free cash flow in 2017, although the IDR300 billion compensation received from PT Telekomunikasi Indonesia Tbk (Telkom, BBB-/Positive) for the termination of its CDMA lease should help with working capital requirements. Organic-Driven Growth: Our projections assume steady tower additions of 300-350 and around 600-700 tenancies yearly, underpinned by the rollout of LTE technology to meet increasing data consumption, and the ensuing demand for bandwidth. In addition, STP's strategy to monetise its fibre-optic backbone (2,712km at end-2016) through long-term lease contracts could provide revenue growth and diversification. The tower business accounted for 90% of revenue, and the non-tower and fibre-related business 10% in 2016. Low Acquisition Risk: Fitch does not expect STP to undertake large debt-funded acquisitions given the low headroom on its incurrence covenant (net debt/last quarter annualised EBITDA of 5.5x) in its unsecured bond documents. As such, any acquisitions are likely to be small, equity-funded or transacted through share swaps. Hedging In Place: Approximately 87% of STP's debt was US-dollar denominated at end-2016. STP fully hedged the principal through currency swaps, mitigating its exposure to rupiah depreciation. Only 57% of the interest payment was hedged against forex risk, but this is partly offset by STP's USD3 million of annual tower revenue from PT Hutchison Indonesia Tbk, which provides a natural hedge. DERIVATION SUMMARY STP's ratings reflect the stability and visibility of the tower company's cash flows, and moderate counterparty risk, with investment-grade telcos accounting for 64% of its 2016 revenue. Tower revenues are supported by long-term lease contracts with Indonesian mobile operators, which we believe justify the higher leverage metrics than for most corporate credits. STP operates on a smaller scale, and organically grows at a slower pace compared with its closest peer TBI. TBI also has a better tenancy mix as investment-grade telcos accounted for 83% of its revenue. However, this is offset by STP's lower net leverage of 5.0x, against TBI's 6.0x. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue to grow in the low to mid-single digits in 2017 and 2018. - Yearly addition of 300-350 towers and around 600-700 tenancies. - Discontinuation of lease payments and no recovery of receivables from Internux. - Stable operating EBITDA margins of 83%-84% in 2017-2018. - IDR300 billion of compensation paid by Telkom in January 2017 due to lease termination post-closure of CDMA services. - Capex/revenue ratio of 35%-45%. - Average interest cost of around 11.5%. - No dividend payments or acquisitions. RATING SENSITIVITIES Developments that may, individually or collectively, lead to positive rating action include: - FFO-adjusted net leverage lower than 4.0x on a sustained basis along with revenue contribution from investment-grade telcos remaining above 60%. Developments that may, individually or collectively, lead to negative rating action include: - A debt-funded acquisition of another tower portfolio or lease defaults by weaker telcos leading to FFO-adjusted net leverage above 5.5x on a sustained basis. An increase in leverage could also result from larger-than-expected capex guidance that will reduce positive FCF. - A fall in revenue contribution from investment-grade telcos to below 50%. LIQUIDITY Reliant of Refinancing: At end-2016, STP had IDR185 billion in unrestricted cash, and IDR100 billion in short-term maturities relating to its revolving credit. The company's liquidity is strengthened by its long-dated debt profile and IDR480 billion of unutilised banking lines. The majority of STP's debt will fall due after 2018, consisting of the USD225 million senior secured term loan due in December 2019 and USD300 million 6.25% unsecured notes due on 24 February 2020. We expect the company to refinance its borrowings with rupiah-denominated debt over the next few years. The USD300 million bond has an optional redemption after February 2018 at 103% - an option STP may consider if cheaper rupiah refinancing is available. FULL LIST OF RATING ACTIONS PT Solusi Tunas Pratama Tbk - Long-Term Foreign-Currency IDR affirmed at 'BB-'; Outlook Stable - Long-Term Local-Currency IDR affirmed at 'BB-'; Outlook Stable - National Long-Term Rating affirmed at 'A+(idn)'; Outlook Stable - Senior unsecured rating affirmed at 'BB-' Pratama Agung Pte Ltd - USD300m 6.25% guaranteed senior unsecured notes due 2020 affirmed at 'BB-'. 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 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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