Fitch Ratings has affirmed Indonesian telecommunications tower company
Fitch Ratings Indonesia has simultaneously affirmed the National Long-Term Rating and national senior unsecured rating of 'AA+(idn)'. The Outlook is Stable.
The Stable Outlook reflects TBI's high cash flow visibility, stable rating headroom underpinned by management's commitment to a leverage target, and business resilience against non-renewal of tower leases by its key tenant,
'AA' National Ratings denote expectations of a very low level of default risk relative to other issuers or obligations in the same country or monetary union. The default risk inherent differs only slightly from that of the country's highest rated issuers or obligations.
Key Rating Drivers
Low Ratings Headroom: We expect TBI to maintain its EBITDA net leverage at around 4.9x during 2023-2025 (1H23: 4.7x), below the threshold of 5.3x, above which we may take negative rating action. Management is committed to its investment-grade ratings and targets to maintain its net debt/last-quarter annualised EBITDA below 5.0x, which corresponds to Fitch-defined EBITDA net leverage of 5.1x-5.2x. Its distributed shareholder returns so far in 2023 are lower than last year, to build cushion in its balance sheet against any additional non-renewal of tower leases by Indosat.
Lease Non-Renewal to Stabilise: We assume tower lease non-renewal in 2023 to be around 1,850 (1H23: 1,061), significantly higher than the annual churn of 320-570 tenants during 2019-2022. We expect TBI's tenant churn rate to stabilise starting 2024, as we expect the dismantling of Indosat's redundant sites to be completed by end-2023. We estimate that the share of lease expirations in overall leases in the next three years to fall as well, which will contribute to a lower churn rate.
Our base case does not factor in the impact from a potential acquisition of
Revenue Growth to Recover: We expect revenue to be flat in 2023 and rise by around the mid-single digits from 2024, driven by net tenancy growth and expansion of the fibre business. EBITDA margin is likely to fall gradually to 85% due to a higher share of revenue from the fibre business, which has lower margin than the tower segment. We expect TBI to add about 850 net tenancies in 2023 (1H23: 544) and about 2,000 a year in 2024-2025. 2023 revenue growth is hampered by higher non-renewal and lease rate resets to lower rupiah rates on 2,500 Indosat contracts in 2H22.
Strong Cash Flow Visibility: TBI's ratings benefit from long-term lease agreements that provide cash-flow visibility. Total locked-in revenue increased to
Measured Shareholder Returns: We expect shareholder distribution to remain prudent and in line with TBI's leverage target. TBI paid
We expect TBI to buy back about
Negative Free Cash Flow: We expect TBI's free cash flow (FCF) remain negative due to continued shareholder distributions and our expectation of higher fibre capex. However, the FCF deficit should narrow, driven by growing revenue and operating cash flow. Cash flow from operations should be enough to fund the company's capex. Management is cautious on M&A and indicated TBI will focus on organic growth rather than acquisitions. We believe the company has the flexibility to delay dividends or reduce the dividend payout ratio to meet its leverage target.
Rated on Standalone Basis: We rate TBI on a standalone basis based on Fitch's Parent and Subsidiary Linkage Rating Criteria because we believe BDIA's consolidated credit profile is the same to TBI's as BDIA's data centres are on a smaller scale compared with TBI. We believe BDIA's access to TBI's cash is limited to TBI's shareholder return policy. With 15% of shares owned by the public, significant affiliated-party transactions with BDIA or related entities require shareholder approval and are subject to regulations.
No Material Structural Subordination: We expect TBI's prior-ranking debt to remain at less than 1x of EBITDA. Therefore, bonds issued at the holding company level are rated at the same level as TBI's IDR. TBI's prior-ranking debt are mainly a US dollar revolving credit facility (RCF), which was less than 10% of its total outstanding debt at
Derivation Summary
TBI warrants a notch lower rating than
TBI is rated two-notches below US-based tower operator,
TBI warrants a similar rating as European tower company,
Indian tower company,
Key Assumptions
Flat revenue for 2023 (2022: increase of 5.6%) due to Indosat lease non-renewal. Revenue to increase by 4% to 6% during 2024 and 2025.
Net tenancy additions of 850 in 2023 (2022: 1,796), due to impact from Indosat-Hutch's network integration and normalise to 2,000-2,100 a year in 2024-2025.
EBITDA margin to gradually decline to 85% due to a higher share of revenue from the fibre business, which has lower margin.
Capex to moderate to around
Dividends and share buybacks together to reach
Average interest rate of borrowing at 6.0% for 2023 and decline to 5.5% in 2024.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
EBITDA net leverage below 4.3x for a sustained period.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
More aggressive shareholder returns, debt-funded acquisition or further telecom sector consolidation that leads to higher tenancy churn that causes EBITDA net leverage to remain above 5.3x for a sustained period.
Liquidity and Debt Structure
Robust Access: TBI had a cash balance of
We believe TBI's access to both onshore and offshore loan and bond markets remains robust. In
Mostly Fixed-Rate Debt: TBI's effective interest cost dropped to 6.1% by end-2Q23 from 6.4% at end-2022 with over 86% debt at fixed rates. Debt maturity remains well-spread, with
Issuer Profile
TBI builds, owns and operates telecommunication towers for mobile operators. It had 22,136 tower sites and 41,428 tenancies as of
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
BDIA is TBI's direct parent and owns 75% of TBI. BDIA is jointly owned by MAIF3 (32.3%),
TBI's management is committed to its leverage target. Transactions with affiliated parties require disclosure and significant related-party transactions also require approval from independent shareholders.
The company has distributed
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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