Dec 27 2012

MARC affirms Tele-Flow Capital Sdn Bhd's RM90.0 million MUNIF/IMTN facility at MARC-1ID/AAID and upgrades RM10.0 million Junior IMTN Facility to AA-ID

MARC has affirmed its ratings of MARC-1ID/AAID on Tele-Flow Capital Sdn Bhd's (Tele-Flow Capital) RM90 million Murabahah Underwritten Notes Issuance (MUNIF)/Islamic Medium Term Notes (IMTN) Facility (Senior Notes) and concurrently upgraded the rating on the RM10 million Junior IMTN Facility (Junior Notes) to AA-ID from A+ID. The outlook on the ratings is stable. The rating action affects RM15 million outstanding notes, consisting of RM10 million Senior Notes and RM5 million Junior Notes.

Tele-Flow Capital is a wholly-owned funding vehicle of Tele-Flow Corporation Sdn Bhd (Tele-Flow Corp) and was incorporated to issue the notes to finance the construction/acquisition of telecommunication towers or structures in Kedah. The rating affirmation reflects the credit quality of the assigned rental revenue from creditworthy telecommunication companies (telcos) as the source of repayment of the notes. The stability and predictability of the rental revenue are underpinned by a 10-year license agreement between Yiked Bina Sdn Bhd (YBSB), a joint-venture company between Tele-Flow Corp and the Kedah state government that holds exclusive rights to construct and manage telecommunication towers in the state, and the three telcos, namely Celcom Axiata Bhd (Celcom), Maxis Broadband Bhd (Maxis) and DiGi Telecommunications Sdn Bhd (DiGi). YBSB has assigned the rental payments from the telcos to Tele-Flow Corp, which in turn has assigned the same to Tele-Flow Capital.

Rental payments from the 136 completed telecommunication towers are directed into a trustee-controlled collection account, following which 60% of the total rental payment will be transferred into a sinking fund account to meet the debt service obligations on the notes with the balance channelled into an operations account for maintenance works. Tele-Flow Capital maintained comfortable covenant headroom with respect to its finance service cover ratio (FSCR) which stood at 29.4 times (x) as at December 31, 2011, well above its minimum covenant of 1.5x. The one-notch upgrade of the Junior Notes is premised on the improved debt service coverage, which is expected to strengthen over the remaining tenure of the facility, particularly in view of the unlikely event of further debt being issued before the expiry of the Senior Notes in 2013.

Tele-Flow Capital has not drawn down on the rated facilities to finance the construction or acquisition of any new towers since the last rating review, and the company has indicated that it is not expected to issue anymore notes under the facilities. As such, the rental stream from the existing 136 towers will fund debt service on the outstanding notes of RM15 million. MARC notes that the aggregate balance in the designated accounts stood at RM8.1 million as at end-November 2012, which coupled with projected annual net operating cash flow of about RM12 million, will enable the company to adequately address repayments of RM10 million Senior Notes in May 2013 and RM5 million Junior Notes in May 2014. In addition, the company's net operating cash flow will be augmented by cash and cash equivalent holdings of above RM8 million after debt repayments at the end of each year for the remaining tenure of the debt.

The stable outlook reflects the expectation of stable and timely lease payments from the telcos for the financed towers.

Se Tho Mun Yi, +603-2082 2263/ munyi@marc.com.my;
Sonia Lim, +603-2082 2267/ sonia@marc.com.my;
Sharidan Salleh, +603-2082 2254/ sharidan@marc.com.my.

© Press Release 2012

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