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Rating Action:

Moody's upgrades Protelindo's rating to Ba1; outlook remains stable

01 Apr 2015

Singapore, April 01, 2015 -- Moody's Investors Service has upgraded the corporate family rating (CFR) for PT Profesional Telekomunikasi Indonesia ("Protelindo") to Ba1. The outlook on the rating is stable.

RATINGS RATIONALE

"Protelindo's upgrade reflects the continued resilience in Protelindo's financial and credit profile, such that the company has the financial flexibility to make debt funded acquisitions and maintain its adjusted leverage at 3.0x-3.5x and its Ba1 rating," says Nidhi Dhruv, a Moody's Assistant Vice President.

Protelindo's leverage has strengthened considerably through EBITDA growth, which was driven largely by a significant increase in the number of tenancies on its towers. Leverage also improved because the company has not made any large debt-funded acquisitions during the past three years. Nonetheless, Protelindo has the financial flexibility to absorb a fully debt-funded acquisition of up to 4,000 towers.

"Should a large acquisition opportunity not arise, we believe Protelindo will use its excess cash flows for shareholder returns rather than to reduce debt materially. We also expect the company to make smaller opportunistic acquisitions. As a result, our expectation is for Protelindo's debt levels to increase, although continued EBITDA growth will keep its debt-to-EBITDA ratio at 3.0x-3.5x and interest coverage at 4.0-4.5x," adds Dhruv, also Moody's Lead Analyst for Protelindo.

Protelindo's credit quality is underpinned by its strong business profile and market position. Despite Protelindo not making a material acquisition in the past few years, it has maintained its No.1 market position with 11,332 towers. However, over the next quarter, PT Tower Bersama Infrastructure (TBI, Ba2 negative) will catapult to the No. 1 position with about 14,753 towers and 22,444 tower tenants, following the completion of its pending acquisition of Mitratel. Nonetheless, Protelindo will remain a solid No. 2 operator, with a significant lead over the No. 3 operator, PT Solusi Tunas Pratama (STP, unrated) which had 6,651 towers as of December 2014.

"Nonetheless, Protelindo's financial metrics are much stronger than TBI's and STP's, although this is partly because the other two companies have made significant debt-funded acquisitions over the last three years. Despite only organic growth, Protelindo's scale is larger than its peers' and its leverage and interest-coverage metrics are stronger for the 12 months through December 2014," adds Dhruv.

Protelindo's share of revenue generated from the largest mobile operators in Indonesia -- Telekomunikasi Indonesia (Baa1 stable), Telekomunikasi Selular (Baa1 stable), Indosat Tbk (Ba1 stable) and XL Axiata Tbk (Ba1 stable) -- together the 'Big 4' has increased to about 45% as of December 2014, from 35% in December 2012. On the other hand, its revenues from PT Hutchison 3 Indonesia (H3I, unrated) has been consistently declining.

Moody's also considers that Protelindo's high customer concentration and exposure to H3I may limit upward rating direction, but does not present a material near-term negative risk, especially given the long-term nature of the contracts.

The rating continues to benefit from Protelindo's strong market position as one of the leading independent tower companies in Indonesia founded on a business model which has a high degree of revenue transparency and predictability. At the same time, the rating reflects the relatively limited history of tenancy renewals in Indonesia, and the limited scale of the business.

Concerns also exist regarding emerging market risk and particularly any changes to the regulatory and political environment in Indonesia as well as potential for the dynamics of the tower industry to change as large telecommunications operators strategically review options for their sizeable tower portfolios.

The outlook on the ratings is stable on the expectation that Protelindo financials will remain strong as it continues to expand and deleverage and that the regulatory environment remains relatively benign.

Given the recent upgrade in Protelindo's rating, upward rating pressure is unlikely over the next 18-24 months in light of Protelindo's acquisition appetite and likelihood of initiating shareholder returns. However, upward pressure may build if Protelindo's financial profile improves significantly and there is a track record of successful contract renewals. Specific indicators that we would consider for upgrading the rating include adjusted debt/EBITDA declining to below 2.5x on a consistent basis and interest coverage, as measured by adjusted (FFO + interest)/interest, rising above 4.5x-5.0x.

Alternatively, we would consider downgrading the rating if adjusted debt/EBITDA increases and remains above 3.5x-4.0x and (FFO + interest)/interest falls below 3.5x-4.0x. Acquisitions substantially beyond our expectations in terms of size or price paid, lower rental rates due to increased competition, or a material deterioration in the financials of one of its major tenants such as H3I would likely cause these metrics to weaken.

The principal methodology used in this rating was Global Communications Infrastructure Rating Methodology published in June 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Founded in 2003, Protelindo is one of two leading independent tower companies in Indonesia with 11,332 telecommunication sites serving 20,138 tenants as of 31 December 2014. It essentially leases space on its communications towers to cellular telecommunications operators on long-term contracts.

Protelindo is wholly owned by Sarana Menara Nusantara (SMN, unrated), which is listed on the Indonesian Stock Exchange. Currently, 32.7% of SMN is owned by the Hartono family, and Protelindo's management, sponsors and advisors hold a significant stake in the company.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Nidhi Dhruv
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Laura Acres
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's upgrades Protelindo's rating to Ba1; outlook remains stable
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