Cellular service provider Sampoerna Telekomunikasi Indonesia has secured government approval to start operating 4G LTE technology in April, moving its service from the CDMA network it has been using until now, to cater to growing demand in the country's remote areas. (JG Photo/Dhana Kencana)

XL Axiata's Tower Sale Plan Is 'Credit Positive': Moody's

BY :VANESHA MANUTURI

FEBRUARY 03, 2016

Jakarta. The plan of XL Axiata, Indonesia's second largest mobile phone operator by subscriber, to sell up to 2,500 tower units by mid-year could be a "credit positive" for the company, rating agency Moody's Investors Service recently said, noting that the move would boost its liquidity.

XL Axiata, the country's third-largest network operator, recently announced a plan to sell between 2,000 and 2,500 towers by mid-year through an open auction in order to pay off its debt. Several local tower operators, among which are Tower Bersama Infrastructure and Sarana Menara Nusantara, have shown their interest in acquiring the towers.

The company currently has a Ba1 ratings, which is the lowest notch in investment grade ratings, with a stable outlook.

In a statement on Tuesday, Nidhi Dhruv, an assistant vice president at Moody's, said the plan "will allow the company to monetize [on] its non-core tower assets, which will in turn improve its liquidity profile."

Proceeds from the sale could also help fund XL Axiata's operations this year as the company's current cash levels remain "insufficient" to cover estimates of a Rp 7 trillion ($507.26 million) budget in capital spending, as well as dividend payments of approximately Rp 500 billion and debt maturities of Rp 4.3 trillion, Moody's said.

XL Axiata's cash sources currently at Rp 3.3 trillion of cash on hand, with expected cash flow from operations of approximately Rp 7.5 trillion in the next 12 months, according to Moody's.

Still, at the same time, the move would place a slight pressure on XL Axiata's margins as revenues from the company's tower leasing operations, which have higher margins, decline following the sale, according to Dhruv.

"The company is also likely to continue facing foreign-exchange pressures on margins," Dhruv said in a statement. "Nonetheless, it has achieved early success in raising prices, and could gain further traction through management's commitment to focus on higher [average revenue per user] customers and prudently priced data packages."

The network operator, a local affiliate of Malaysia's Axiata Group, reported a Rp 25.3 billion loss last year compared to Rp 803 billion in the year before, largely due to Rp 2.5 trillion foreign exchange losses. Meanwhile, revenue declined 2.5 percent to Rp 23 trillion.

XL Axiata saw its total subscribers decline by about 30 percent to 42 million last year amid the company's move to clean up its inactive subscriber base, increasing the company's blended ARPU to Rp 34,000 last year from Rp 26,000 in 2014.

The company is also planning to hold a rights issue in May in order to repay its $500 million shareholder loan from holding company Axiata Group that's due in March next year, which would decrease leverage, according to Moody's.

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