Tele-Flow Capital Sdn Bhd - 2011

MARC has affirmed its ratings on special purpose company Tele-Flow Capital Sdn Bhd’s (Tele-Flow Capital) RM90 million Murabahah Underwritten Notes Issuance Facility/Islamic Medium Term Notes (MUNIF/IMTN) (Senior Notes) and RM10 million Junior Islamic Medium Term Notes (Junior Notes) at MARC-1ID /AAID and A+ID respectively. The rating outlook is stable. The rating action affects RM25 million of outstanding notes issued under the programme.

The affirmed ratings reflect the credit quality of the rental payment stream from creditworthy mobile operators as the source of repayment of the notes. The payment stream is backed by a ten-year licence agreement between Yiked Bina Sdn Bhd (YBSB), Kedah state-backed company (SBC), and the three main domestic telecommunication operators (mobile operators), Celcom Axiata Bhd, Maxis Broadband Sdn Bhd and DiGi Telecommunications Sdn Bhd, that obligates the mobile operators to make monthly rental payments of defined amounts for usage of telecommunication towers. The credit strength of the assigned revenue stream is derived from the strong financial profiles of the mobile operators as well as the predictable lease rentals. These lease rentals are based on agreed-upon rates in a long-term licence agreement which remains in effect throughout the tenure of the programme. The transaction structure provides for direct payment of all lease rentals into a trustee-controlled collection account, and the transfer of a defined percentage of collection into a sinking fund account for debt service (60%) with the balance made available for operation and maintenance expenses. The aforementioned credit strengths are reflected in Tele-Flow Capital’s comfortable covenant headroom for its finance service cover ratio (FSCR); its FSCR for the 12 months ended December 12, 2010 (FY 2010) was 13.49 times (x) as compared to its minimum required FSCR of 1.5x.

YBSB is a licensed Network Facilities Providers (NFP) under the Communications and Multimedia Act 1998. As an SBC, YBSB has the sole right to build, manage, lease and maintain telecommunication infrastructures (including towers) in Kedah for a period of ten years until 2015. YBSB is owned by the Kedah state government’s Yayasan Islam Kedah through Yiked Holdings Sdn Bhd (51%) and Tele-Flow Corporation Sdn Bhd (Tele-Flow Corporation) (49%). YBSB’s 10-year licence agreement with the mobile operators provides visibility  and  predictability to  Tele-Flow Capital’s  rental  stream  throughout  the  term of  the  notes. The quantum of rent payable by the mobile operators is determined by factors such as the height of the towers, the number of mobile operators sharing the towers and the variation orders for the towers (if any). The lease rentals paid into a trustee-controlled collection account from which 60% of the funds are remitted into a sinking fund account for debt service on the notes and the balance, into an operations account for the maintenance of the towers.

To date, Tele-Flow Capital has issued RM60 million in Senior Notes and RM5 million in Junior Notes, backed by 136 towers. As of September 2011, Tele-Flow Capital has paid down RM40 million of the Senior Notes, leaving outstanding Senior Notes of RM20 million and RM5 million in Junior Notes. Tele-Flow Capital financed another 9 towers in FY2010, which brings the total towers financed under the programme to 136 towers. Since FY2007, on-balance sheet receivables and cash/bank balances have provided one to one coverage of outstanding borrowings.

MARC notes that rental payments from the mobile operators have continued to be timely and the stable outlook for the notes incorporates expectations of continued timely payments from the mobile operators for the towers.

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