Rational Instacom SPV Sdn Bhd’s (Instacom SPV) RM200 million Murabahah Medium Term Notes’ (MMTN) rating has been affirmed at AA-ID with a stable outlook. The rating reflects the strength of the issue structure governing the programme which eliminates the risks from construction and its associated costs, ensures robust cash flows from strong off takers such as Maxis Telecommunications and Digi and accords note holders a priority ranking in terms of payment obligations under the MMTN programme.

Instacom SPV is a single-purpose entity wholly owned by Instacom Engineering Sdn Bhd (IESB) to facilitate the issuance of the MMTN. IESB specializes in the erection of telecommunication towers, related civil works for tower sites, construction of telecommunication cabins and other related works.

The MMTN programme is a structured transaction involving the assignment of license and/or rental payments from specific local telecommunication companies (telcos) to Instacom SPV, in respect of the erection of telecommunication towers and construction of related infrastructure (telecommunication facilities) by IESB. The proceeds of MMTN programme are then used to pay IESB for the costs of construction.

The Malaysian Communications and Multimedia Commission (MCMC) has initiated two programmes aptly named Time One and Time Two which set timelines for telcos to establish and improve the reach of mobile phone coverage for users. The initiative involves the construction of telecommunication towers with the assistance of State Backed Corporations (SBC’s) to facilitate the identification of sites and obtaining approvals. This has provided opportunities for construction companies involved in the construction and management of towers.

Under the issue structure, the off takers, i.e. the local telcos, who are the users of the telecommunication facilities built by IESB, will remit monthly rental payments directly to Instacom SPV via an assignment. Off taker risk is minimal based on the credit standings of the respective telcos and this translates into stable and consistent cash flows for Instacom SPV. Additionally, 15% of the amount due to IESB is retained within Instacom SPV as buffer and this further enhances the robustness of its cash flow. To date, payments from the telcos have been prompt.

Construction risk is mitigated as the drawdown of the MMTN is subject to the completion of the telecommunication facilities by IESB, including agreement on any variation order claims that may arise. Liquidity risk is mitigated by the priority ranking accorded to payment obligations under the MMTN programme vide a payment waterfall while refinancing risk is moderated by the serial nature of the facility. A requirement to maintain at all times minimum cash balances sufficient to meet the next three months of principal and coupon repayments acts as additional liquidity buffer.

The proposal for a 3-year extension to the tenure of the MMTN Programme will cater for delays in the Time Two implementation whilst ensuring better cash flow matching of rental payments by telcos and repayment obligations under the MMTN Programme.