Independent mobile infrastructure operators have offered a new way for investors and lenders to gain exposure to emerging telecoms markets. Shorn of some of the messier aspects of telecoms operations, including marketing expenses and customer churn, tower operators get to participate in the growth story without a lot of the potential downside.

Africa has been the source of many of the stand-out financings for independent infrastructure operators, while India has been an active, if not always lucrative, market. This year’s Telecoms Deal of the Year winner is for the largest acquisition financing in the ASEAN region in telecoms, and involves Tower Bersama’s acquisition of 2,500 towers from Indonesian mobile operator Indosat.

Tower Bersama, founded in 2003 as United Towerindo, has been listed since 2010 on the Jakarta Stock Exchange. Locally-based financial sponsors Provident Capital, Saratoga Infrastructure and Wahana Anugerah Sejahtera are among its largest shareholders, while the free float accounts for about 35% of its equity.

The borrower operates in Java, Bali, Sumatera and Batam, with plans to expand into Kalimantan and Sulawesi. Its customers include CP Telecommunications, Hutchison, Telkomsel, Telkom Flexy, and XL Axiata. But the Indosat deal was a transformative acquisition, making Indosat an important client and shareholder, and taking Tower Bersama’s number of towers to around 6,500.

The buyer and seller agreed terms in February 2012. The 2,500 towers represented about a quarter of Indosat’s tower assets, and brought in $406 million upfront, with another $113 million performance-based component. The upfront payment consisted of a cash component and new shares equivalent to 5% of Tower Bersama’s capital

Under the sale-leaseback arrangement, Indosat also agreed to become an anchor tenant on the tower network for a term of ten years. It sold the assets, it said, because it could reduce its maintenance obligations and build in a preferential tariff as anchor tenant. Tower Bersama agreed to this preferential tariff because it hopes to collocate services for other operators at these sites.

First-mover advantage is important when selling tower infrastructure, because the first operator to outsource its network operations can usually extract the best terms from buyers. Later, more marginal customers will have to pay fuller tariffs.

In the period during and since Tower Bersama’s Rp1.12 trillion initial public offering, it has closed three rounds of bank financing, and raised a little under $600 million in debt. It has assembled a devoted club of banks, particularly liquid Singaporean institutions, which have made dollar financings for Indonesian assets a speciality.

The buyer mandated five lenders to provide a bank facility to fund the cash component of the acquisition as well as upcoming organic capital expenditure requirements. The five – ANZ, BTMU, DBS Bank, Oversea-Chinese Banking Corp and United Overseas Bank – committed $250 million towards a $325 million target.

The final five-year financing was split into two tranches – a $166 million series four dollar facility and a $158 million equivalent rupiah-denominated series five facility. Both facilities are secured at Tower Bersama’s operating subsidiaries, and rank pari passu with the existing debt.

The participants in the dollar tranche were OCBC, DBS, Crédit Agricole, BTMU, CIMB, Bank of East Asia, SMBC, Cathay United Bank, and HSBC, while the rupiah tranche brought in ANZ, UOB, Bank Central Asia, Bank Negara, ICBC, Bank Danamon, QNB, OCBC and Bank of China. The dollar tranche lending group highlights the increasing dominance of Singaporean and Japanese lenders in regional project finance, with only one European lender making an appearance, as well as the increased appetite for rupiah assets from both domestic and foreign-owned lenders.

Independent mobile infrastructure operators are somewhat new to regional lenders, however, and they typically insist upon conservative debt/Ebitda metrics. Given the fast growth in Tower Bersama’s business, and the difficulty of carving out particular sets of assets, lenders usually assess an operator’s business as a corporate whole.

What this means is that when an operator does land a long-term contract with a highly-rated mobile operator, it does not always get the leverage that it might expect from banks. African tower operators have begun raising subdebt from the more aggressive regional players. Standard Bank, which has established a franchise in Africa, and participated in the earlier Tower Bersama debt series, offered the buyer an additional $50 million in three-year holding company financing, and sold down $10 million of that tranche to Chinatrust.

The subdebt allows the borrower to capture some of the benefit of the Indosat anchor lease, but will probably be repaid quickly with the proceeds of later rounds of senior debt financing. Whether senior lenders will gradually come closer to the credit mindset of the subordinated lenders, or these lenders will keep hold of a profitable niche, is difficult to tell. Standard Bank recently decided to pull out of Asia to focus on its African heartland, but other lenders – some of them perhaps outside the traditional banking sector – might replace them.

Until then, Tower Bersama’s Indosat acquisition stands as a demonstration that top-tier mobile operators can realize tangible benefits from spinning out infrastructure to well-financed independent operators. Operators still have lingering fears that opening up formerly exclusive infrastructure to their competitors may blunt their edge, but as emerging telecoms markets mature, coverage becomes a less and less important feature of competition between operators, and cost savings come to matter more. 

PT Tower Bersama Infrastructure Tbk
Status
Closed 2 August 2012
Size
$406 million
Description
Acquisition and capital expenditure financing for Indosat telecoms tower infrastructure
Sponsor
Tower Bersama Group
Debt
$374 million
Senior debt arrangers
ANZ, Bank Danamon, Bank Negara, Bank Central Asia, Bank of China, Bank of East Asia, BTMU, Cathay United Bank, Central Bank of East Asia, CIMB, Crédit Agricole, DBS, HSBC, ICBC, OCBC, QNB, SMBC, UOB
Subordinated debt arrangers
Standard Bank (mandated lead arranger and bookrunner), Chinatrust Commercial Bank
Sponsor financial adviser
Barclays
Borrower legal counsel
Middletons
Lender legal counsel
Norton Rose