Tower Bersama Infrastructure (TBI) announced it will acquire a 49 per cent stake in Telkom Indonesia’s tower subsidiary in a share swap that will give it management control of the tower firm in exchange for Telkom gaining an equity interest of up to 13.7 per cent in TBI.
Telkom’s Dayamitra Telkom, better know as Mitratel, owns and operates 3,928 towers and generated IDR1.5 trillion ($123 million) in revenue last year. The deal will make TBI, currently Indonesia’s second largest tower company with 10,159 towers, the largest player by 33 per cent. Protelindo with 10,795 towers will fall to second place.
Telkom, which is 52 per cent state owned, said less than a month ago it planned to become the country’s largest tower operator in the next three to five years and was looking to acquire a majority stake in a listed tower operator in the first quarter of next year through a share swap.
Mobile World Live said the likely target was TBI, which in March brought out Indosat’s remaining 5 per cent stake for IDR1.93 trillion.
That announcement was soon followed by XL Axiata saying it will sell around 3,500 telecoms towers to infrastructure player Solusi Tunas for IDR5.6 trillion ($460 million) and lease them back for 10 years.
Moody’s said yesterday the industry is at an inflection point, with more operators expected to sell their tower assets over the next one to two years.
Share swap details
Telkom will first exchange a 49 per cent stake in Mitratel for 290 million shares (about a 5.7 per cent stake) of TBI, which Moody’s said is currently worth IDR2.3 trillion. The operator has a two-year option to sell TBI its remaining 51 per cent stake in Mitratel for about an 8 per cent interest.
Moody’s said Telkom is also entitled to cash considerations of up to IDR1,739 billion over the next 10 years, when certain performance targets for Mitratel are met. The deal is expected to be completed in Q4 and is subject to various approvals.
There is no upfront cash payment, the agency said, but TBI will take on about IDR2.7 trillion in secured net debt from Mitratel.
Moody’s lowered TBI’s rating outlook in September to negative from stable due to the lack of a significant recapitalisation plan. The company’s ratings outlook remains negative since the its financial metrics will remain strained, but Moody’s has affirmed TBI’s Ba2 corporate rating.
“Despite the additional debt, the deal is credit positive for TBI as it is immediately EBITDA accretive and will help TBI deleverage, given the low gearing at Mitratel,” said Nidhi Dhruv, a Moody’s assistant VP and analyst.
He expects TBI’s adjusted leverage to decline from the current level of about 6.0x to 4.6x in fiscal 2015 and 4.1x in 2016.
TBI’s leverage surged to 6.3x after its largely debt-funded acquisition of 2,500 towers in 2012 from Indosat. Deleveraging has been slower than Moody’s expected, mainly due to lower collocation tenancy growth, said Dhruv, noting there is considerable scope for cost cuts at Mitratel.
Mitratel’s tenancy ratio of 1.1x as of end-June is quite low compared to TBI’s ratio of 1.7x, so there is potential to increase collocations and improve margins, Dhruv said. Given that a majority of Mitratel’s towers have Telkomsel (the country’s largest mobile operator which is owned by Telkom) as their anchor tenant, he expects TBI to be able to further improve its tenancy mix.
For Telkom, Moody’s said the deal with be credit positive as it stands to benefit from the upside potential of the country’s growing tower leasing business. Mitratel accounted for just 1.8 per cent of Telkom’s 2013 revenues.
Moody’s said last week that XL’s plan to sell 35 per cent of its towers to the country’s third-largest tower company is potentially negative for the country’s tower sector if it pushes rental rates lower and kicks off a wave of price competition.