Notes

Fitch Rates Indonesia's TBI's Proposed Notes 'BB (EXP)'


JAKARTA/SINGAPORE/SYDNEY, January 26 (Fitch) Fitch has assigned TBG Global Pte Ltd's proposed US dollar notes, which are guaranteed by PT Tower Bersama Infrastructure Tbk (TBI; BB/Stable), but not by TBI's operating subsidiaries (opcos), an expected rating of 'BB(EXP)'. The final rating of the proposed notes is contingent upon the receipt of documents conforming to information already received.

TBG Global Pte Ltd is a finance subsidiary of TBI, an Indonesia-based telecommunications tower operator. KEY RATING DRIVERS Proposed Notes Not Notched: Fitch rates the proposed notes at the same level as TBI's Issuer Default Rating (IDR) despite their structural subordination to debt at the opcos, which generate all of the group's revenue.

We have not notched down the proposed notes because we believe that there will be a strong creditor recovery in a distress scenario as a high proportion of the group's operating cash flows are contractually locked in (USD2.2bn at end-September 2014). Replacement of Opco Debt: The equalisation of the proposed notes with TBI's IDR is also based on our expectation that the company will gradually replace its debt at its opcos with debt at the holding company. Proceeds from the proposed notes will be used to partially repay unsecured bank borrowings at the opco level, which will reduce the proposed notes' structural subordination.

Mitratel Acquisition Strengthens TBI's Profile: While the acquisition of PT Dayamitra Telekomunikasi (Mitratel) will dilute TBI's EBITDA margin, it will also improve TBI's tenancy mix and cash visibility. Fitch believes that tenancy mix will remain robust with investment-grade telcos accounting for more than 80% of revenue following the acquisition (82% in 3Q14). Additionally, cash flow visibility will improve with additional contracted revenues from Mitratel.

Strong Funding Access: In addition to its high cash flow visibility, TBI's liquidity is also supported by strong access to funding from banks and bond markets, both local and overseas, evidenced by the November 2014 rising of USD1.3bn of unsecured bank borrowings.

More Tower Sales to Come: We believe that the three largest telcos in Indonesia may further monetize their tower portfolios. The market leader PT Telekomunikasi Selular (AAA (idn)/Stable) might divest part of its tower portfolio (around 18,000 towers) despite its low leverage. PT XL Axiata Tbk (BBB/Stable) and PT Indosat Tbk (BBB/Stable) may also try to sell their tower portfolios to release capital (both still own more than 6,000 towers). Fitch believes that a debt-funded tower acquisition will be negative for TBI's ratings given the current low ratings headroom.

RATING SENSITIVITIES Fitch expects no positive rating action as the company's leverage will remain high in the medium term.

Negative: Future developments that could individually or collectively lead to negative rating actions include: - A debt-funded acquisition, or lease defaults by weaker telcos, or significant dividend payments leading to FFO-adjusted net leverage remaining above 4.0x on a sustained basis.

Contacts: Primary Analyst Nitin Soni (International Ratings) Director +65 6796 7235 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard #35-05 Suntec City Tower 4 Singapore 038986 Olly Prayudi (National Ratings) Associate Director +62 21 2988 6812 Fitch Ratings Indonesia DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta 12940 Secondary Analyst Olly Prayudi (International Ratings) Associate Director +62 21 2988 6812 Committee Chairperson Steve Durose Senior Director +61 2 8256 0307 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: [email protected].

Additional information is available on www.fitchratings.com Applicable criteria, "Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 and "National Scale Ratings Criteria", dated 30 October 2013are available at www.fitchratings.com.

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