DHTI Capital Sdn Bhd - 2008

MARC has assigned ratings of AAID /MARC-1ID and A+ID, respectively, to DHTI Capital Sdn. Bhd.’s (DCap) proposed issuance of up to RM110.0 million of Islamic commercial papers/Islamic medium term notes (Senior Notes) and up to RM10.0 million Junior Islamic medium term notes (Junior Notes) (collectively, ICP/IMTN Programme). The ratings reflect the credit quality of a rental payment stream from creditworthy telecommunication companies (telcos) that is assessed to be AAID /MARC-1. The payment stream is backed by a licence agreement that obligates the telcos to make agreed monthly rental payments of agreed rent over a period of 10 years. Also factored in the ratings are structural features which ensure ring-fencing of rental payments from the telcos for the benefit of noteholders, the elimination of the noteholders’ exposure to construction risk, and D’Harmoni Telco Infra Sdn Bhd’s (DHTI) exclusive rights to construct and manage the telecommunication towers (towers) in the State of Johor. The rating of the Junior Notes reflects subordination to the Senior Notes in respect of profit payment and principal repayment.

DHTI, the SBC of the State of Johor and the holding company of DCap, was awarded a Network NFP license under the Communications and Multimedia Act 1998 (CMA) to build, manage, lease and maintain towers for a period of ten years until 2015. The Johor State Government, via its wholly owned subsidiary, YPJ Corporation Sdn Bhd, owns 20% of DHTI while Crestcom Sdn Bhd and Duta Harmoni Sdn Bhd (DHSB) hold the remaining 80% equity stake. DHTI had entered into an exclusive License Agreement with Celcom (Malaysia) Bhd (Celcom), Maxis Broadband Sdn Bhd (Maxis) and DiGi Telecommunications Sdn Bhd (DiGi) on 28 April 2005 covering a period of ten years.

Under the transaction, RM110.0 million of Senior Notes and RM10.0 million of Junior Notes will be issued to fund the construction of towers undertaken by DHTI and/or the acquisition of existing completed towers in the State of Johor. The drawdown of the Senior Notes is limited to completed towers, thus eliminating construction risk. Lease rental payments made by telcos in respect of the use of the towers on a sharing basis form the source of profit payment and principal repayment for the rated notes.

DHTI will assign lease rental payments from the telcos to DCap, thereby mitigating commingling risk of the payments from the telcos with other funds of DHTI. In addition, the transaction structure requires approximately 60% of the monies from the collection account to be paid into a sinking fund account established solely for payment of principal and profits of the Senior and Junior Notes. The sinking fund ensures sufficient liquidity is maintained for debt service obligations in addition to limiting the outflow of funds for other purposes (i.e. operations and maintenance) to 40% of rental proceeds.

Maintenance risk is assessed to be low as the towers require minimal maintenance work as telcos retain the responsibility for the replacement of antennas or other equipment. However, the transaction remains vulnerable to event risk as there is no insurance coverage against loss of revenue in the event any of the towers are destroyed. DCap’s potential exposure to event risk is assessed to be small in light of the relatively large number of towers involved in this transaction and the relatively short period required to reconstruct a tower. Forecasted cash flows are moderately strong, with minimum FSCRs maintained above 1.0 time under stress scenarios for both the Senior and Junior Notes.