MARC Ratings has assigned a preliminary rating of AA-_IS/Stable to OCK Group Berhad’s (OCK) proposed RM400 million Tranche 1 to be issued under a proposed RM700 million Sukuk Murabahah Programme. OCK is principally involved in telecommunication network services that comprise tower leasing, provision of full turnkey solutions, and managed services. 

The rating considers OCK’s stable operating performance and cash flow visibility, underpinned by long-term contracts, largely predictable expenses, and strong market growth drivers. We expect mobile telecommunication operators to continue densifying their networks to increase coverage and capacity that would lead to an increased demand for tower infrastructure. OCK’s diversification into solar energy backed by long-term power purchase agreements is also positive for its business profile. These strengths are moderated by cross-border risks and, to a lesser extent, contract and land lease renewal risks. 

As at end-2022, OCK had 5,266 telco towers and 7,027 tenancies, of which Malaysia accounted for 566 telco towers and 797 tenancies, Vietnam 3,500 telco towers and 4,550 tenancies, and Myanmar 1,200 telco towers and 1,680 tenancies. Its tenancy ratio stood at 1.37x (2019: 1.28x). It also manages services for telcos in Malaysia (11,300 sites) and Indonesia (49,200 sites) where it has an estimated market share of 45%. There is exposure to political as well as transfer and convertibility risks associated with its presence in the regional markets particularly in Myanmar, as well as with its foreign-currency loans (USD64 million as of end-June 2023). We understand, however, that in Myanmar, OCK has limited its presence to its current telco tower projects only and for which payments being received are denominated in USD. Proceeds raised from the issuance of the RM400 million Tranche 1 will also be largely utilised to refinance the USD loans to mitigate forex risk. 

MARC Ratings has carried out a sensitivity analysis excluding contributions from Myanmar and Vietnam, and applying a lower operating margin of 30%, among other factors. We deem the resulting estimated net cash flow as adequate for debt service. We project the finance-to-EBITDA ratio over a 2023-2027 forecast horizon to be manageable, with a peak of around 4.5x (assuming full drawdown of the RM700 million Sukuk Murabahah Programme although no such additional leverage is currently contemplated). Overall, we draw comfort from cash flow visibility from locked-in contracted revenue that is typically 10-15 years in initial length for built-to-suit tenancies and 3-10 years for co-locations. As of end-2022, the average remaining contract life was seven years for Malaysia (Vietnam: four years; Myanmar: 10 years). In Indonesia, contract tenures range from one to four years.