MARC Ratings has assigned a rating of AA_IS to Cellco Capital Berhad’s (Cellco) RM130 million Islamic Medium-Term Notes (Issue 2) to be issued under its Sukuk Ijarah Programmes of up to RM1.0 billion. The rating outlook is stable. The RM130 million will be the second issuance under the Sukuk Ijarah Programmes after the RM520 million (Issue 1) in 2021 which also carries ratings of MARC-1_IS/AA_IS/Stable. 

The transaction structure of Issue 2 mirrors Issue 1 in that the proceeds from the issuance will be used to purchase and lease back 141 completed telecommunication (telco) towers from/to Advanced Research Communication Sdn Bhd (ARC, 92 towers) and Celltrax Technologies Sdn Bhd (CTSB, 49 towers). 

The long-term rating reflects the strength of the transaction structure, where payments from long-term lease agreements with key domestic telco players, ranging from five to 10 years, provide strong cash flow visibility to meet the financial obligations under Issue 2. Lease payments are ring-fenced in designated accounts controlled by the Security Trustee. The rating also considers the low non-renewal risk, premised on the fact that telco towers remain as critical infrastructure for telco players, and the strong growth potential of the telco industry driven by the increased demand for broadband services and the push for national digital connectivity. 

MARC Ratings also notes that sukukholders do not bear construction risk associated with towers, as the towers are completed and revenue-generating prior to the acquisition. The locked-in revenue for the towers is forecast at about RM18 million p.a. Termination risk of lease agreements is mitigated by the non-cancellable lease terms during the initial lease contract period. 

CelcomDigi Berhad, Maxis Berhad and U Mobile Sdn Bhd currently account for about 78% of rental income. Concentration risk is high, but the rating agency views the risk as mitigated by the strong market position of these key customers, ARC’s and CTSB’s longstanding relationships with the telcos, and the high switching costs, particularly arising from operational factors. The rating agency also notes that the telco towers are sited on land typically with a three-year lease period, which is shorter than the tower lease agreements. The risk of operational disruption due to non-renewal of leases is largely mitigated by the obligors’ healthy track record in renewing all their land agreements. 

The base case scenario projects ample headroom to meet the finance service coverage ratio (FSCR) covenant due to a strong cash position, partly supported by proceeds from the sukuk. MARC Ratings’ sensitised case, which assumes lower tenancy growth and increases in operating expenses of 5% p.a., projects FSCR to average 2.9x throughout the sukuk tenure, with a minimum FSCR of 1.5x in 2035. 

Haziq Najmuddin, +603-2717 2965/ haziq@marc.com.my 

Hafiza Abdul Rashid, +603-2717 2955/ hafiza@marc.com.my