Indonesia Dealbook: SK Telecom in IoT pact, Fitch upgrades Protelindo rating

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Indonesia’s PT Telekomunikasi Indonesia Tbk (TLKM) and SK Telecom  of South Korea signed  an MoU. While, Fitch Ratings upgraded PT Profesional Telekomunikasi Indonesia‘s (Protelindo) long-term foreign-currency issuer default rating to ‘BBB-‘ from ‘BB+’

Also Read: Telkom Indonesia eyes M&A in Asian markets, to spend $1.7b on digital business

SK Telecom expand lifeware services to Indonesia

Indonesia’s largest telecom operator PT Telekomunikasi Indonesia Tbk (TLKM) and SK Telecom  of South Korea, have signed a memorandum of understanding (MoU) to cooperate in new business areas including IoT, media and smart products such as Lifeware.

Lifeware refers to SK Telecom’s consumer-centric smart devices that add value and convenience to people’s lives.

Based on press statement, under the MOU, the two companies will work together to develop new business opportunities in the areas of smart city and IoT services.

In addition, the two companies will also discuss the idea of building a joint venture for their IoT business within the next two years.

The MOU signing took place at Telkom headquarters in Jakarta on May 12 and was attended by Lee Eung-sang, Executive Vice President and Head of Global Business Division of SK Telecom, and Indra Utoyo, Chief Innovation Strategy Officer of Telkom.

SK Telecom and Telkom also agreed to collaborate in the development of cloud-based TV services or solutions for Telkom customers by utilizing SK Telecom’s media solution ‘Cloud Streaming,’ provided by SK Telecom’s wholly-owned subsidiary ENTRIX.

Furthermore, the two companies agreed to work together to introduce SK Telecom’s laser pico projector ‘UO Smart Beam Laser’ to the Indonesian market.

Also Read : Indonesia: Elevenia raises $50m from XL Axiata, SK Planet

“Through the MOU, SK Telecom will work closely with Telkom to develop mutually-beneficial business opportunities in diverse areas including IoT, smart city and media,” said Lee Eung-sang, Executive Vice President and Head of Global Business Division of SK Telecom.

Fitch upgraded Protelindo rating to BB+

Fitch Ratings Indonesia has upgraded Protelindo’s National Long-Term Rating, national senior unsecured rating, and rating on its Rp1 trillion senior unsecured bond to ‘AAA(idn)’ from ‘AA+(idn)’. The outlook on the ratings is Stable.

The rating upgrades reflect the strong recurring cash flows and moderate net leverage of Protelindo, Indonesia’s largest independent telecom tower company. These were underpinned by its consistent financial policy of aiming for net debt-to-EBITDA of under 3.0x (2015: 1.8x).

Fitch believes that the company’s current scale and financial strength can comfortably support a combination of organic and inorganic growth, and progressive dividends, without a material impairment to its credit profile.

Fitch expects Protelindo’s funds flow from operations-adjusted net leverage for 2016 to increase to 2.8x (2015: 2.1x) after it agreed to acquire Rp3.6 trillion of towers from Indonesia’s third-largest mobile operator, PT XL Axiata Tbk (EXCL: BBB/Stable).

However, the additional cash flow from the sale-and-leaseback deal is likely to improve net leverage to 2.4x-2.6x in 2017 and 2018. The transaction will be mainly debt-funded, and is scheduled to conclude by mid-2016.

Fitch has revised the guideline for negative rating action for Protelindo’s FFO-adjusted net leverage to 4.0x from 3.5x, following updated peer comparison analysis with international telecommunications infrastructure businesses.

“We believe the moderate leverage, strong predictable cash flows and high EBITDA margins (2015: 84.2%) support a rating upgrade. Protelindo had locked-in revenue of IDR26trn at the end of 2015, supported by an average long-dated contract period of 6.2 years,” Fitch says.

According to the rating agency, the tower acquisition will expand the company’s portfolio to 14,700 towers  from 2015 about 12,237 units, which will strengthen its lead against PT Tower Bersama Infrastructure Tbk (TBIG: BB/Stable) and PT Solusi Tunas Pratama Tbk (SUPR: BB-/Stable).

Fitch forecasts steady organic growth in towers in 2017 and 2018 in light of the progressive long-term evolution (LTE) rollout in major cities. However, Protelindo’s relatively low leverage will help mitigate its counter party risks from weaker telcos. PT Hutchinson 3 Indonesia and PT Smartfren Telecom Tbk (FREN) accounted for 38 per cent and 7 per cent, respectively, of the company’s revenue in 2015.

Also Read: Indonesia’s tower operator Protelindo secures $25.36m loan from DBS