Instacom SPV Sdn Bhd - 2010

MARC has affirmed its AAID ratings on Instacom SPV Sdn Bhd’s (ISPV) RM200 million Murabahah Medium Term Notes (MMTN) Programme with a stable outlook.

Instacom SPV Sdn Bhd was established to facilitate the issuance of notes under the MMTN Programme on behalf of Instacom Engineering Sdn Bhd (IESB), a telecommunication tower (telco tower) contractor. Proceeds from the issuance of notes are used to finance the purchase of completed works under a turnkey contract with Terengganu state-backed Desabina Industries Sdn Bhd (DISB) as well as contracts entered into directly between IESB and the three domestic mobile operators, Celcom Axiata Berhad, Maxis Broadband Sdn Bhd and DiGi Telecommunications Sdn Bhd (DiGi).

ISPV receives payments from two sources: the monthly rental stream from the three domestic mobile operators for the usage of telco towers under its turnkey contract with DISB and construction receivables in respect of completed works under contracts entered into directly between IESB and the three domestic mobile operators. ISPV and its noteholders are not exposed to construction risk; the proceeds of the notes can only be used to finance the purchase of completed works.

The transaction continues to perform in line with MARC’s expectations. The monthly rental stream from mobile operators is projected to be sufficient to fully pay down amounts drawn down to finance the purchase of completed works under the DISB contract. ISPV has drawn down RM58.4 million since the inception of the programme up to August 31, 2010 to provide funding support for IESB’s telco tower construction activity under the DISB contract and will collect rental payments totalling RM90.5 million until April 2015. Of this, RM22.3 million has been paid down. Since the expiry of IESB’s contract with DISB, drawdowns by ISPV have been limited to the short-term financing for the purchase of completed works under DiGi contracts.

As of August 31, 2010, RM81 million of notes remain outstanding under the programme. The redemption of another RM10 million of notes is scheduled in the remaining months of 2010. Further drawdowns are anticipated in 2011 and 2012 to fund the purchase of completed works under IESB’s DiGi contracts. ISPV’s annual finance service cover ratio (FSCR) as at end-December 2009 which measures cash flow coverage of debt service for the next six months was 4.61 times compared to the minimum required ratio of 1.25 times. ISPV’s cash balance of RM32 million as of August 31, 2010 is sufficient to address debt maturities of RM5 million each in October and December 2010 and January 2011.

The stable outlook continues to reflect the very strong creditworthiness of the three mobile operators and the predictability of payment streams backing the notes.

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