MARC Ratings has assigned a preliminary rating of AA+IS to edotco Malaysia Sdn Bhd’s proposed Islamic Medium-Term Notes Programme (Sukuk Wakalah Programme) of up to RM3 billion with a stable outlook.
The rating agency adds the rating reflects the company’s solid market position as one of the country’s largest tower companies, high cash flow visibility from long-term tower leases with Malaysian telcos, and low operational and counterparty risks. The rating also incorporates the telco tower industry’s strong growth potential, supported by rapid data growth and the accelerated push for national digital connectivity.
Indirectly majority-owned by Axiata Group Berhad, edotco Malaysia and its subsidiaries (edotco Malaysia Group) boasts 6,046 towers and a 20% domestic share of the tower market as of end-March 2022. Its acquisition of Touch Mindscape Sdn Bhd (Touch), which had 934 tenanted towers at end-December 2021, has further bolstered its market share. We draw comfort from edotco Malaysia Group’s sizeable long-term lease agreements — standing at around 13,000 tenancies as of end-March 2022 — to provide circa RM850 million in revenue per year. Given its strong EBITDA margin, we forecast edotco Malaysia Group to maintain a comfortable debt-to-EBITDA ratio, which would be about 2.5x based on the RM1.6 billion debt level as at end-March 2022.
MARC notes that maintenance capex for the towers is low. Notwithstanding the group’s large revenue exposure to a related telco, it incorporated a low weightage to concentration risk given the oligopolistic nature of the domestic telco industry, the strong credit quality of its main counterparties, and the deterrent factor of high switching costs.
edotco has historically demonstrated a conservative financial profile with zero borrowings prior to 2021. The Group’s total outstanding borrowings of RM1.6 billion as at end-2021 are related to the tower purchase and acquisition of Touch. Proceeds from the first issuance of up to RM1.4 billion under the proposed Sukuk Wakalah Programme will be used to refinance its borrowings. Total projected borrowings are not expected to exceed RM1.5 billion over the 2023-2027 period for its organic requirements. Given its solid operating cash flow generation, the rating agency views healthy headroom to meet financial obligations.
