MARC has affirmed the ratings of DHTI Capital Sdn Bhd’s (DHTI Capital) RM110.0 million Islamic Commercial Papers (ICP)/Islamic Medium Term Notes (IMTN) (Senior Notes) and RM10.0 million Junior IMTNs (Junior Notes) at MARC-1ID /AAID and A+ID respectively. The outlook on the ratings is revised to negative from stable. The rating action affects RM23 million of outstanding notes, comprising RM20.0 million Senior Notes and RM3.0 million Junior Notes.

DHTI Capital, a wholly-owned funding vehicle of D’Harmoni Telco Infra Sdn Bhd (DHTI), issued Islamic debts to finance the purchase of receivables in respect of completed telecommunication (telco) towers constructed by DHTI in Johor. DHTI has obtained the rights to build, manage, maintain and lease the towers in Johor for which periodic lease rentals received from telco companies have been assigned to DHTI Capital to meet the profit and principal payments of the rated notes. As at September 30, 2013, lease rentals were received from 166 completed telco towers. 

The affirmed ratings are premised on the credit quality of the assigned lease rentals from the telco companies, namely, Maxis Berhad, Celcom Axiata Berhad and DiGi Telecommunications Sdn Bhd, The rating on the Senior Notes is weak-linked to MARC’s AA/stable public information rating on the lowest rated telco company. The Junior Notes continue to be rated two notches below the long-term rating on the Senior Notes to reflect their subordination to the Senior Notes in respect of profit and principal payments. The negative outlook reflects DHTI Capital’s tighter liquidity position following an additional drawdown of RM20 million Senior Notes in 2012 to acquire 47 completed telco towers. MARC notes that financial obligations from the increase in borrowings and a recent repayment of RM5 million ICPs have reduced DHTI Capital’s sinking fund balance to a historic low of about RM0.1 million as at end-September 2013.

MARC also expects added pressure on DHTI Capital’s net cash flow (NCF) generation following a 25% reduction in lease rentals on towers which have reached the eighth year of leasing in accordance with the licensing agreement between the telcos and DHTI.  Nonetheless, accumulated rental stream going forward from the existing towers, which will generate NCF of about RM12.1 million per annum, is adequate to address the redemptions of the outstanding Senior Notes of RM20 million and Junior Notes of RM3.0 million on the final maturity of the notes in May 2015 and May 2016 respectively. In the interim, liquidity risks are somewhat mitigated by DHTI Capital’s ability to roll-over its ICPs.
 
However, the ratings could come under pressure if there is further weakening in DHTI Capital’s liquidity position which may be triggered by substantially lower than projected lease rentals and/or, in a very unlikely scenario, of a further drawdown of the notes for acquisition of new towers.  

Contacts:
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my;
Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my