MARC has affirmed the ratings of MARC-1ID/AAID on Cellular Structures Sdn. Bhd. (CSSB) RM184.0 million Senior MUNIF/IMTN (Senior Notes) under its RM192 million MUNIF/IMTN Facility (Facility). The ratings reflect the credit quality of the rental payment stream from creditworthy telecommunication companies (telcos) that is assessed to be MARC-1ID/AAID.  The payment stream is backed by a licensing agreement that obligates the telcos to make monthly payments of agreed rent over a period of ten 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 construction risk and the exclusive rights given to Konsortium Jaringan Selangor Sdn. Bhd. (KJS) to construct and manage the telecommunication towers and structures in State of Selangor (Selangor). The RM8.0 million Junior IMTN Facility (Junior Notes), the proceeds of which to meet issuance fees and expenses, is unrated.

Cellular Structures Sdn. Bhd. (CSSB), is a wholly owned subsidiary of KJS incorporated solely for the purpose of issuing notes under the MUNIF/IMTN Facility; funding the construction of telecommunication towers or infrastructures (towers) undertaken by KJS and the acquisition of completed towers in Selangor; and, collecting periodic rental payments from telcos as consideration for use of the towers on a sharing basis. KJS was appointed as the management services company for Selangor.

The licensing agreement between KJS and the telcos offers key support for the structured financing. Under the License Agreement with Celcom (Malaysia) Bhd. (Celcom), Maxis Broadband Sdn. Bhd. (Maxis) and Digi Telecommunications Sdn. Bhd. (DiGi) in April 2005 covering a period of ten years, monthly rental payments are payable in accordance with an agreed license fee schedule by the telcos, which will use the towers on a sharing basis. Rental payments are dependent on the height of the tower, number of telcos sharing the tower and variation order for the tower (if any). This contractual arrangement provides a high degree of visibility to the cash flow stream that supports debt service cover under the notes.

The drawdown of the Senior Notes is subject to the completion of construction of towers by KJS, thus eliminating construction risk.  As at June 2007, RM30.0 million of Senior Notes and RM5.0 million of Junior Notes have been drawdown upon the completion and acquisition of 68 towers. The rental payments from the telcos which form the source of profit payment and principal redemption for the Senior and Junior Notes are assigned to CSSB. In addition, the transaction structure requires approximately 60% of the monies from the collection account to be paid into the sinking fund account specifically earmarked for payment of principal and profit of the Senior and Junior Notes, thus mitigating liquidity risk.

Operational risks are considered low in view of the minimal maintenance required by KJS. However, the transaction is exposed to event risk as insurance procured on completed towers do not cover revenue generation loss in the event some of the towers are destroyed. Nevertheless, based on the forecasted cashflow, MARC expects the debt service cover to be relatively resilient with the ability to withstand a loss in revenue of up to 10.1% per annum from beginning of Year 3 of the Facility onwards. The forecasted cash flow is moderately strong, exhibiting some ability to withstand a 3 month delay in the collection of 25% of annual tower rents, changes in variation orders, and number of telcos sharing the towers. The minimum FSCR is expected to be above the covenanted level of 1.5 times with the exception of the stress scenario which factors in changes to the tenant base, although under such a circumstance, the minimum FSCR remains above 1.0 time. MARC notes that in the projections, all drawdowns under the facility are concluded in the first 3 years, allowing sufficient time for the accumulation of rental payments to meet the redemption of the notes at maturity.